# EDGAR Filing Document

**Accession Number:** 0001340476
**File Stem:** 0000950170-23-003814
**Filing Date:** 2023-2
**Character Count:** 798072
**Document Hash:** 3ea090556ab8553105c764047303b697
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-003814.hdr.sgml**: 20230222

**ACCESSION NUMBER**: 0000950170-23-003814

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 120

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230222

**DATE AS OF CHANGE**: 20230222

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** DIRTT ENVIRONMENTAL SOLUTIONS LTD
- **CENTRAL INDEX KEY:** 0001340476
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-PREPACKAGED SOFTWARE [7372]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** A0
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-39061
- **FILM NUMBER:** 23654400

**BUSINESS ADDRESS:**
- **STREET 1:** 7303 30 ST S E
- **CITY:** CALGARY ALBERTA T2C 1N6 CAN
- **STATE:** A0
- **ZIP:** T2C 1N6
- **BUSINESS PHONE:** 403-723-5000

**MAIL ADDRESS:**
- **STREET 1:** 7303 30 ST S E
- **CITY:** CALGARY ALBERTA T2C 1N6 CAN
- **STATE:** A0
- **ZIP:** T2C 1N6

?xml version="1.0" encoding="ASCII"? 10-K

**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION** 

**Washington, D.C. 20549** 

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**FORM** 10-K

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**(Mark One)** 

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the fiscal year ended** **December 31,** 2022

**OR** 

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the transition period from to** 

**Commission File Number** 001-39061

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DIRTT ENVIRONMENTAL SOLUTIONS LTD**.** 

**(Exact name of Registrant as specified in its Charter)** 

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| | |
|:---|:---|
| **Alberta,** Canada | N/A  |
| **(State or other jurisdiction of**<br>**incorporation or organization)** | **(IRS Employer**<br>**Identification No.)** |
| 7303 30th Street S.E.<br>Calgary**,** Alberta**, Canada** | T2C 1N6 |
| **(Address of principal executive offices)** | **(Zip code)** |

---

**Registrant's telephone number, including area code: (**403**)** 723-5000

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**Securities registered pursuant to Section 12(b) of the Exchange Act:**

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| | | |
|:---|:---|:---|
| **Title of Each Class** | &nbsp;&nbsp;&nbsp;**Trading**<br>**Symbol(s)** | &nbsp;&nbsp;&nbsp;**Name of Each Exchange on Which Registered** |
| Common Shares, without par value | DRTT | The Nasdaq Stock Market LLC |

---

**Securities registered pursuant to Section 12(g) of the Act: None**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 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 the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☐ | Accelerated filer | ☒ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
|  |  | Emerging growth company | ☒ |

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If an emerging growth company, 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. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of the common shares on The Nasdaq Stock Market on June 30, 2022, was $64,781,634.

The registrant had 97,961,655 common shares outstanding as of February 17, 2023.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement relating to the Annual and Special Meeting of Shareholders, scheduled to be held on May 4, 2023, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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**TABLE OF CONTENTS** 

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| | | |
|:---|:---|:---|
|  |  | &nbsp;&nbsp;&nbsp;**Page** |
| **PART I** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 1. | [<u>Business</u>](#item_1_business) | &nbsp;&nbsp;6 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 1A. | [<u>Risk Factors</u>](#item_1a_risk_factors) | &nbsp;&nbsp;15 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 1B. | [<u>Unresolved Staff Comments</u>](#item_1b_unresolved_staff_comments) | &nbsp;&nbsp;23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 2. | [<u>Properties</u>](#item_2_properties) | &nbsp;&nbsp;23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 3. | [<u>Legal Proceedings</u>](#item_3_legal_proceedings) | &nbsp;&nbsp;24 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 4. | [<u>Mine Safety Disclosures</u>](#item_4_mine_safety_disclosures) | &nbsp;&nbsp;25 |
| **PART II** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 5. | [<u>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</u>](#item_5_market_for_registrants_common_equ) | &nbsp;&nbsp;26 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 6. | [<u>\[Reserved\]</u>](#item_6_reserved) | &nbsp;&nbsp;27 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 7. | [<u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>](#item_7_managements_discussion_analysis_f) | &nbsp;&nbsp;28 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 7A. | [<u>Quantitative and Qualitative Disclosures About Market Risk</u>](#item_7a_quantitative_qualitative_disclos) | &nbsp;&nbsp;44 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 8. | [<u>Financial Statements and Supplementary Data</u>](#item_8_financial_statements_supplementar) | &nbsp;&nbsp;46 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 9. | [<u>Changes in and Disagreements With Accountants on Accounting and Financial Disclosure</u>](#item_9_changes_in_disagreements_with_acc) | &nbsp;&nbsp;77 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 9A. | [<u>Controls and Procedures</u>](#item_9a_controls_procedures) | &nbsp;&nbsp;77 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 9B. | [<u>Other Information</u>](#item_9b_or_information) | &nbsp;&nbsp;77 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 9C. | [<u>Disclosure Regarding Foreign Jurisdictions that Prevent Inspections</u>](#item_9c_disclosure_regarding_foreign_ju) | &nbsp;&nbsp;77 |
| **PART III** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 10. | [<u>Directors, Executive Officers and Corporate Governance</u>](#item_10_directors_executive_ficers_corpo) | &nbsp;&nbsp;78 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 11. | [<u>Executive Compensation</u>](#item_11_executive_compensation) | &nbsp;&nbsp;78 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 12. | [<u>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</u>](#item_12_security_ownership_certain_benef) | &nbsp;&nbsp;78 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 13. | [<u>Certain Relationships and Related Transactions, and Director Independence</u>](#item_13_certain_relationships_related_tr) | &nbsp;&nbsp;78 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 14. | [<u>Principal Accounting Fees and Services</u>](#item_14_principal_accounting_fees_servic) | &nbsp;&nbsp;78 |
| **PART IV** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 15. | [<u>Exhibits, Financial Statement Schedules</u>](#item_15_exhibits_financial_statement_sch) | &nbsp;&nbsp;79 |
| &nbsp;&nbsp;&nbsp;&nbsp;Item 16. | [<u>Form 10-K Summary</u>](#item_16_form_10k_summary) | &nbsp;&nbsp;84 |

---

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**EXPLANATORY NOTE** 

**Currency and Exchange Rate Information** 

Unless otherwise indicated, references in this Annual Report on Form 10-K (the "Annual Report") to "$" or "dollars" are expressed in U.S. dollars (US$). References in this Annual Report to Canadian dollars are noted as "C$."

Our consolidated financial statements that are included in this Annual Report are presented in U.S. dollars. Unless otherwise stated, all figures presented in Canadian dollars and translated into U.S. dollars were calculated using the daily average exchange rate as reported by the H.10 statistical release of the Board of Governors of the Federal Reserve System on December 31, 2022 of C$1.3532 = US$1.00.

**Market and Industry Data** 

Certain market and industry data contained in this Annual Report, including Item 1. "Business" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," are based upon information from government or other third-party publications, reports and websites or based on estimates derived from such publications, reports and websites. Government and other third-party publications, reports and websites do not guarantee the accuracy or completeness of their information. While management believes this data to be reliable, market and industry data are subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, and other limitations and uncertainties inherent in any statistical survey.

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**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS** 

Certain statements contained in this Annual Report are "forward-looking statements" within the meaning of "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") and "forward-looking information" within the meaning of applicable Canadian securities laws. All statements, other than statements of historical fact included in this Annual Report, regarding without limitation our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Annual Report, the words "anticipate," "believe," "expect," "estimate," "intend," "plan," "project," "outlook," "may," "will," "should," "would," "could," "can," the negatives thereof, variations thereon and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular and without limitation, this Annual Report contains forward-looking information pertaining to the effect of our strategic priorities on increasing value creation; the application of our processes and technology and the benefits therefrom, forecast operating and financial results, including 2023 revenue, and the impact of certain cost-saving measures, the development, timing and success of strategic accounts, the outcome of non-dilutive strategy initiatives, the competitiveness of the Company's solutions, the liquidity and capital resources of the Company, current claims against the Company and expiring patents will have on the Company's business, financial condition, results of operations and growth prospects; our executive management team and the effect the rating systems established by the U.S. Green Building Council will have on demand for products, systems and services in the U.S. market. Forward-looking statements are based on certain estimates, beliefs, expectations and assumptions made in light of management's experience and perception of historical trends, current conditions and expected future developments, as well as other factors that may be appropriate.

Forward-looking statements necessarily involve unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed or implied in such statements. Due to the risks, uncertainties and assumptions inherent in forward-looking information, you should not place undue reliance on forward-looking statements. Factors that could have a material adverse effect on our business, financial condition, results of operations and growth prospects include, but are not limited to, the severity and duration of the coronavirus ("COVID-19") pandemic and related economic repercussions and other risks described in Item 1A. "Risk Factors," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report. These factors include, but are not limited to, the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the impact of the COVID-19 pandemic and any strain variants or resurgences thereof on our business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•general economic and business conditions in the jurisdictions in which we operate, including inflation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to implement our strategic plan, including realization of benefits from certain cost-optimization initiatives undertaken in 2022;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the availability of capital or financing on acceptable terms, or at all, which may impact our liquidity and impair our ability to make investments in the business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•turnover of our key executives and difficulties in recruiting or retaining key employees;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the ability of our reconstituted board of directors ("Board of Directors") to successfully implement its transformation plan;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•we have a history of negative cash flow from operating activities;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to attract, train and retain qualified hourly labor on a timely basis to increase overall productive capacity in our manufacturing facilities to enable us to capture rising demand as the construction industry recovers from the COVID-19 pandemic;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to achieve and manage growth effectively;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•competition in the interior construction industry;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•competitive behaviors by our co-founders and former executives;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the condition and changing trends of the overall construction industry;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our reliance on our network of construction partners ("Construction Partners"), which we have previously referred to as our Distribution Partners, for sales, marketing and installation of our solutions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to introduce new designs, solutions and technology and gain client and market acceptance;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•defects in our designing and manufacturing software and warranty and product liability claims brought against us;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•inflation and material fluctuations of commodity prices, including raw materials and our ability to set prices for our products that satisfactorily adjust for inflation and fluctuations in commodity prices;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effectiveness of our manufacturing processes and our success in implementing improvements to those processes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effectiveness of certain elements of our administrative systems and the need for investment in those systems;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•shortages of supplies of certain key components and materials or disruption in supplies due to global events;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•global economic, political and social conditions and financial markets, such as the war in Ukraine;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our exposure to currency exchange rates, tax rates, interest rates and other fluctuations, including those resulting from changes in laws or administrative practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•legal and regulatory proceedings brought against us;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•infringement on our patents and other intellectual property;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•cyber-attacks and other security breaches of our information and technology systems;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•damage to our information technology and software systems;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our requirements to comply with applicable environmental, health and safety laws;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the impact of increasing attention to environmental, social and governance (ESG) matters on our business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to generate sufficient revenue to achieve and sustain profitability and achieve positive cash flows;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•periodic fluctuations in our results of operations and financial conditions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•volatility of our share price;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to maintain our listing on Nasdaq (as defined herein);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effect of being governed by the corporate laws of a foreign country, including the difficulty of enforcing civil liabilities against directors and officers residing in a foreign country;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the availability and treatment of government subsidies (including any current or future requirements to repay or return such subsidies);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•future mergers, acquisitions, agreements, consolidations or other corporate transactions we may engage in; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•other factors and risks described under the heading "Risk Factors" in Item 1A. of this Annual Report.

These risks are not exhaustive. Because of these risks and other risks and uncertainties, our actual results, performance or achievement, or industry results, may be materially different from the anticipated or estimated results discussed in the forward-looking statements in this Annual Report. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the effects of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements. Our past results of operations are not necessarily indicative of our future results. You should not place undue reliance on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. We undertake no obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under applicable securities laws. We qualify all of our forward-looking statements by these cautionary statements.

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**PART I** 

**Item 1. Business.** 

**Overview** 

DIRTT is an interior construction company whose system of physical products and digital tools empowers design freedom, drives efficiency, supports sustainability goals, and readily adapts to change. Since 2004, DIRTT has grown to become a leader in industrialized construction for dynamic interior spaces, translating unique visions into compelling spaces where people work, learn, and heal.

DIRTT's construction system offers unrivaled design freedom, accuracy, and quality assurance together with greater certainty in cost, schedule, and outcomes. By empowering faster decision making, rapid manufacturing, and efficient installation, DIRTT can reduce construction timelines by as much as 30% compared to conventional construction methods.

DIRTT spaces are built for change and ready to adapt as organizational needs evolve. Design for disassembly ensures components are interchangeable and can be repurposed for small updates or full reconfigurations without major renovation, cost, or waste.

Our approach to industrialized construction combines a sophisticated product infrastructure with a dedicated team of construction experts and advanced digital tools. DIRTT's first-of-its-kind software called ICE® ("ICE" or "ICE Software") serves as the engine for our industrialized construction system, enabling solutions to be designed, visualized, organized, configured, priced, and manufactured off-site, with final assembly and installation completed at the job site. Our clients' design visions are translated into the intelligent software platform, empowering faster decision making during design with real-time changes, visualization, and pricing information. ICE connects directly to DIRTT manufacturing facilities for end-to-end integration, precise manufacturing, production management, and coordination of the DIRTT scope. In addition to the core ICE platform, our cloud-based virtual reality tool and app, called ICEreality, connects teams from anywhere in the world to walk through their virtual space together, while design changes can be made with real-time feedback on pricing.

We work with some of the most innovative clients, design teams, and construction professionals. We reach our clients through an internal sales team and international network of independent DIRTT Construction Partners ("Construction Partners" or "Partners"). Their DIRTT expertise makes them trusted professionals in their regions for pre-construction, order, installation, and adaptation of interior spaces. DIRTT Construction Partners work with clients and construction teams, ensuring effective management and execution of the DIRTT scope on every project. Long term, they support reconfigurations, adaptations, and adjustments, continuously protecting our clients' investments in DIRTT while ensuring their spaces stay relevant.

DIRTT was incorporated in Alberta, Canada, under the Business Corporations Act (Alberta) ("ABCA") on March 4, 2003. Our headquarters are located at 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, and our telephone number at that address is 403-723-5000. Our manufacturing facilities are in Calgary, Alberta and Savannah, Georgia.

We completed our initial public offering in Canada in November 2013 and listed our common shares on the Nasdaq Global Select Market ("Nasdaq") in October 2019. Our common shares trade on the Toronto Stock Exchange ("TSX") under the symbol "DRT" and on Nasdaq under the symbol "DRTT."

Unless otherwise specified or the context otherwise requires, references to "we," "us," "our," "its," "the Company" or "DIRTT" mean DIRTT Environmental Solutions Ltd. and, where the context so requires, includes our subsidiaries.

**Available Information** 

We file or furnish annual, quarterly and current reports, proxy statements and other documents with the U.S. Securities and Exchange Commission ("SEC") under the Exchange Act. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers, including DIRTT, that file electronically with the SEC. We are also subject to requirements of applicable securities laws in Canada, and documents that we file with the securities commissions or similar regulatory authorities in Canada may be found at www.sedar.com.

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We make available free of charge through our website (www.dirtt.com) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC or the securities commissions or similar regulatory authorities in Canada. In addition to the reports filed or furnished with the SEC and the securities commissions or similar regulatory authorities in Canada, we publicly disclose information from time to time in our press releases, investor presentations posted on our website and at publicly accessible conferences. References to such information, including references to our Environmental, Social, and Governance (ESG) Report, and references to our website in this Annual Report are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Annual Report.

We will provide without charge to you, upon your request, a copy of our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC and the applicable securities commissions or similar regulatory authorities in Canada. Requests for copies should be addressed to 7303 30 Street SE, Calgary, Alberta, T2C 1N6, Canada, Attention: Investor Relations.

**Our Solutions** 

Our ever-expanding array of products and integrations give our clients the tools to create high-performing interiors that stay relevant into the future. Unlike conventional prefabricated products, our solutions do not have predetermined shapes, sizes, or configurations, empowering clients with design freedom to meet their needs. The core of our product philosophy is a construction system that uses a universal interface. By allowing interchangeable parts, DIRTT can maximize the life cycle for most of our products. Committed to sustainability, we subscribe to non-obsolescence, where new DIRTT components work with DIRTT products that came before. Our solutions can be disassembled and reconfigured with minimal waste. With both design freedom and adaptability benefits, client spaces are tailored to their unique needs on Day One and can be more easily reconfigured or adapted to stay relevant on Day Two and beyond.

Our solutions are typically able to address over 90% of an interior space. Components are manufactured in DIRTT facilities and shipped to site for installation. The following table provides a brief description of our primary solutions:

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| | |
|:---|:---|
| **DIRTT Solution** | **Description** |
| Solid Walls | DIRTT's solid walls offer extensive options with 4", 6", and 2" furring wall offerings. Solid walls connect seamlessly to other products in the DIRTT construction system and enable unique finishes, colors, and configurations. Wall cavities support electric, network, and technology integrations. |
| Glass Walls | DIRTT's glass walls are available as double pane, classic center-mount, or Inspire™ profiles. DIRTT glass walls can accommodate base building variance and acoustic requirements. |
| Combination Walls | Solid and glass walls can be combined for a mix of privacy and transparency. Combination walls can be customized and configured to fit any design with the benefits of the DIRTT system. |
| Leaf Folding Walls® | The retractable modular wall system adds functionality with an effortless solution to quickly adapt space. Like other walls in the DIRTT portfolio, dimensions and finishes of Leaf™ can be customized. |
| Headwalls | This modular, multi-trade healthcare headwall system is an efficient, adaptable approach to healthcare construction. With extensive customization options and integrations, DIRTT Headwalls are an efficient way to meet unique healthcare compliance requirements. |
| Doors | DIRTT doors integrate seamlessly with DIRTT solid and glass wall assemblies. A wide range of types and styles are available, including swing doors, sliding doors, and pivot doors. Door options can meet smoke-rating and acoustic requirements. |
| Casework | DIRTT offers custom cabinets, closets, and storage solutions with consistent quality and efficient installation. Precision-manufactured casework is delivered with predictable lead times. |
| Timber | Traditional craftsmanship meets advanced, custom manufacturing to create striking designs and structural elements. Engineered to meet local requirements, DIRTT Timber integrates with broader DIRTT scopes to bring natural elements to spaces with rapid assembly on-site. |
| Electrical | DIRTT's modular electrical system supports connected infrastructure needs. The pre-wired, modular distribution system includes pre-mounted and terminated device boxes installed at the factory to reduce project time and cost on-site. Plug-in connections allow for quick installations and easy modifications. |
| Networks | DIRTT's Fiber to the Edge networks deliver unlimited bandwidth capability and longer-reaching signal strength while reducing supporting infrastructure needs and material costs. Industry-leading technology and future-ready infrastructure empowers smart building benefits. Copper-based network options reduce install time and increase flexibility. |
| Access Floors | Low-profile, fixed-height access floor provides an adaptable foundation for connected infrastructure with long-term accessibility for easy moves, additions, and changes. |

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In addition to our core product offering, DIRTT enables integrations with technology, custom graphics, writable surfaces, and Breathe® Living Walls. Further product information can be found on dirtt.com.

**Sustainability and Environmental Matters**

DIRTT aims to minimize the environmental impact of interior construction through careful material selection, efficient operations, a system designed for future adaptability, and long product lifecycles. We work with clients to understand their unique sustainability goals and identify how building with DIRTT can support LEED, WELL, Living Building Challenge, and other green building standards they may be targeting. Our sustainability team helps to calculate various elements of the DIRTT scope that support certification.

Approximately 40% of solid waste in the United States derives from construction and demolition. In contrast, DIRTT's agile construction system makes it quick, easy, and cost effective to evolve interior spaces through future reconfigurations and relocations, while minimizing waste. Our agile system is designed for disassembly to reduce the carbon footprint of new construction and future changes. We further reduce waste through efficient manufacturing and pre-assembled solutions.

We continuously evaluate the environmental impact of our materials, considering impact on the wellness of the occupants using the spaces we build and life cycles of the products we make. DIRTT endeavors to use materials with high recycled content, bio-based content, and low or no volatile organic compounds (VOCs). Most DIRTT assemblies are certified through Science Certification Systems (SCS) Indoor Advantage Gold, recognizing their low-emitting properties. DIRTT wall panel and casework facilities are certified to handle materials with FSC® certification (FSC-C006900), ensuring FSC certified products may be specified.

DIRTT releases an annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability and the environment. It also provides disclosure of our current environmental and sustainability impacts. By 2025, DIRTT has committed to reducing our landfill waste from 2021 levels by 35% and sourcing or producing renewable energy to cover 100% of our factory operations.

Further information about DIRTT's sustainability practices can be found at dirtt.com/sustainability.

**Our Business Strategy** 

Our goal is to help clients envision and design interior construction projects and then build and deliver those projects faster, cleaner, more efficiently and with a better overall client experience and satisfaction than conventional construction methods. The modular aspect of our DIRTT construction system allows them to be easily reconfigured with a minimal amount of waste as client space needs change. Our innovative, technology-driven approach includes outstanding product design that is customized for each client application and delivered on time and on budget.

Our strategy is founded on the following priorities:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The identification and pursuit of client segments that benefit most from DIRTT's value proposition;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Client-centric, continuous innovation in DIRTT construction systems and our technology to enhance product differentiation and drive market penetration and growth;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Technology-enabled manufacturing processes that facilitate short lead times, a reliable client service platform, and outstanding quality on a cost-effective basis; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Ongoing development and support of our Construction Partners to ensure flawless execution and a superior end client experience.

In combination with a focus on cost-discipline, a continuous improvement philosophy, and a focused approach to capital investment, we believe these strategic priorities will drive increased value creation for our employees, clients, Construction Partners, and shareholders.

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**Our Competitive Strengths** 

We believe the following attributes provide us with competitive strengths in the industrialized construction industry:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Leader in Integrated Design and Manufacturing Technology. We believe our ICE Software is the only interior construction technology that efficiently integrates the design, configuration, and virtual reality visualization processes with the manufacturing process. The use of 3D technology in a design environment, utilizing video game technology for real time decision making, is an approach pioneered by DIRTT.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Easy and Intuitive Software Interface. Our ICE Software is a fast, powerful tool with an intuitive user interface. Our software's ease of use enables rapid time-to-value for our clients and collaboration among all the stakeholders involved in the design, reconfiguration, budgeting and manufacturing processes. Our use of 3D virtual reality and augmented (mixed) reality technologies enables clients to visualize and modify their designs before manufacturing begins, thereby reducing cost and time to completion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Proprietary Solutions Components. The physical components that comprise our DIRTT construction system have been designed to provide clients with numerous options and full modularity. As a result, we are able to create interior environments that are fully customizable and not limited by a pre-set product list. The modular nature of our components allows them to be reconfigured or adapted easily, with minimal disruption to the occupants of the space and with minimal job site waste.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Strong Construction Partner and Sales Network. Our strong network of Construction Partners and DIRTT sales representatives allows us to maximize our geographic reach, helps build brand awareness in the interior construction market, and enhances our positioning in our target markets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Superior Results Compared to Conventional Design and Construction. We believe we produce superior client results as compared with conventional design and construction methods in sequencing, certainty, budget allocation, and outcome.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Effective Sequencing. Conventional construction generally follows a rigid sequencing process. Typically, wall framing is constructed first, followed by floors and electrical and data networks. This process is then followed by drywall installation, painting, and flooring, and then installation or building of casework (millwork) and fixtures. These steps generate significant waste and create opportunities for delay, change orders, cost overruns and rework. In contrast, DIRTT's approach integrates various product applications as tailored to specific project needs. They are manufactured off-site and arrive on-site organized, labeled and ready to be installed. This enables the interior solutions to be produced concurrently with on-site construction work, thereby reducing on-site time and the overall construction schedule.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Certainty. Our technology-based design and manufacturing solutions address changes in design, communications with clients, and material costs with more certainty than conventional construction methods, which often involve retrofitting electrical and data networks, change orders, uncertain timelines, and costly rework. Our controlled manufacturing environment reduces deficiencies and errors and produces more consistent solutions in predictable time frames.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Budget. Because of our integrated design, visualization and manufacturing technologies, we can price the effect of design choices and changes immediately and deliver the fully designed, manufactured interior solutions ready to install. This provides budget certainty both in the cost of our DIRTT Solutions as well as in on-site labor for the installation process.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Outcome. Our interior spaces look like the images our clients expect from the design drawings and virtual visualizations, because those same drawings and visualizations drive the manufacturing process. Plumbing, electrical, A/V and data networks are integrated into the architecture of our DIRTT Solutions. For example, DIRTT Walls carry an aesthetic of permanent walls, but if an IT or facilities team needs to get inside the wall for any reason, they can use a tool to remove the surface of the wall to examine the wall cavity quickly, cleanly and quietly. This eliminates the need to knock down, and then patch and repaint, drywall or reconfigure fixtures and cabinetry. Our modular designs offer flexibility and interconnectivity with any technology, furniture, casework (millwork) or DIRTT Solutions that were previously used or that may be used in the future, allowing clients to reconfigure and repurpose their space while reducing disruptive and time-consuming demolition and waste removal.

**Construction Partners and Sales Network** 

We primarily sell DIRTT Solutions through a network of independent DIRTT Construction Partners working in conjunction with local DIRTT sales representatives, as well as internal DIRTT industry specialists, business development professionals and a dedicated Construction Partner support team. Construction Partners and local sales representatives are located in cities throughout the United States and Canada, with additional locations in Singapore and the United Kingdom. The use of a dispersed network of Construction Partners greatly enhances our ability to drive awareness of the DIRTT brand and understanding of our approach to construction throughout our markets.

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As part of our distribution agreements, our Construction Partners are typically required to invest in their own DIRTT Experience Center ("DXC") so that they are able to effectively showcase DIRTT Solutions. These DXCs are showrooms that provide mock-ups of DIRTT Solutions and related product offerings. As well, DIRTT maintains DXCs in Calgary, Chicago, New York City, and Dallas.

Our Construction Partners operate under agreements that outline sales goals and marketing territories which are generally non-exclusive. We expect our Construction Partners to build regional DIRTT-dedicated teams (sales, design and project management) and to use our ICE Software in the sales process. In addition to sales and marketing, our Construction Partners provide value throughout the construction process. At the pre-construction stage, Construction Partners provide design assistance services to the architect and designer; throughout the construction process, Construction Partners act as a specialty subcontractor to the general contractor and provide installation and other construction services. Post-move in, Construction Partners provide warranty work, ongoing maintenance and reconfiguring support. Local DIRTT sales representatives work closely with the Construction Partners throughout the process to ensure successful project implementation and the highest client satisfaction. Construction Partners generally place orders for DIRTT Solutions directly with us and pay us directly for such orders.

We have the ability to bring on new Construction Partners in a wide range of geographic areas, which permits us to quickly establish a presence in new market areas. Our Construction Partners also scale our virtual reality technology, such as our smart phone- and tablet-based applications, to fit their capacity and needs.

At December 31, 2022, we had a total of 67 Construction Partners and 46 sales representatives across North America. We are not dependent on any one Construction Partner or sales representative.

Strategic accounts are a cornerstone in our strategy to drive long-term sustainable and predictable growth. These types of clients manage large real estate footprints in numerous locations. For these clients it is advantageous and important to establish consistency in design and execution, repeatability, and speed to market. While these relationships can take time to develop, once they are established, the time and resources required to execute additional projects is reduced, which we believe will create profitable, predictable revenue streams. In return, clients benefit from a single point of accountability at DIRTT, a strong network of partners, full lifecycle support from established design standards and pre-construction expert support for their architects, designers and general contractors from field work to post installation support.

**Manufacturing and Properties** 

Our DIRTT Solutions are currently manufactured at our facilities in Calgary, Alberta and Savannah, Georgia. On February 22, 2022 we announced the closure of our Phoenix Facility in Arizona. On August 23, 2022, we announced the temporary suspension of operations at our Rock Hill, South Carolina Facility as the Calgary and Savannah Facilities can meet current demands. Currently our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. Through distributed manufacturing we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times. Our Rock Hill Facility has capabilities to produce panels. If we experience additional growth, we may need to add or expand additional manufacturing facilities and resume operations at the Rock Hill Facility.

**Suppliers and Raw Materials** 

Our inventory balances consist primarily of raw materials, which are kept on hand as components of our custom manufacturing process. Managing our raw material inventory is essential to our business, given our short lead times from order to shipment and our high level of order customization. Our key manufacturing materials are aluminum, hardware, wood and glass. For the twelve months ended December 31, 2022, aluminum accounted for approximately 35% of our purchased materials, while hardware, wood and finishing powder & paint accounted for approximately 12%, 12%, and 9%, respectively. While we maintain multiple suppliers for key materials, for the twelve months ended December 31, 2022, (i) two suppliers accounted for approximately 38% and 24% of our aluminum supply, respectively, and two additional suppliers providing approximately 14% each (ii) two suppliers accounted for approximately 33% and 37% of our wood supply (iii) one supplier accounted for approximately 94% of our paint & powder and (iv) one supplier accounted for approximately 38% of our hardware supply.

Materials are sourced domestically and, to a much lesser extent, overseas. Approximately 93% of our materials are manufactured and purchased in North America. Purchase decisions are made on the basis of quality, cost, and ability to meet delivery requirements. We do not typically enter into long-term agreements with suppliers. In general, adequate supplies of raw materials are available to all our operations and to date we have not been materially impacted by supply chain disruptions due to the COVID-19 pandemic, other than inflationary price pressures across substantially all of our raw material requirements, although aluminum purchases may be subject to market capacity constraints.

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**Technology and Development** 

We continue to focus on developing client-centric innovations and enhancements of both ICE Software and DIRTT Solutions with a primary focus on improving client experience, increasing market penetration and growing key markets. At December 31, 2022, we employed 90 employees within our technology and development groups and, including capitalized amounts, invested $10.3 million, $11.1 million and $11.6 million in 2022, 2021 and 2020, respectively, in innovation activities.

**Clients** 

DIRTT's principal geographic markets are the United States and Canada. Our revenue is derived almost entirely from projects in North America sold by our North American Construction Partners.

Our revenue opportunities primarily come from commercial projects, including both new construction projects and renovations of existing buildings. Clients range from small owner-managed businesses to multinational Fortune 500 companies across a variety of industries, including healthcare, education, financial services, government and military, manufacturing, non-profit, energy, professional services, retail, technology, and hospitality. We view DIRTT Solutions as generally industry agnostic, with applications in many different industries with minimal adjustments. We are not dependent on any one client or industry segment. No single client represented more than 10% of our revenue for the years ended December 31, 2022, 2021, or 2020.

**Competition** 

The overall market for interior construction is fragmented and highly competitive. The principal competitive factors in the interior construction industry include price (including cost certainty), speed, quality, customization, and service. Our main competitors are comprised primarily of conventional construction firms, individual tradespeople (including framers, drywall installers, and interior product designers) and modular systems manufacturers. Additionally, conventional construction firms are beginning to develop customizable wall paneling and other interior construction solutions and may directly compete with our DIRTT Solutions. We also compete with commercial furniture manufacturers, such as Teknion Corporation, Haworth Inc. and Allsteel Inc., who offer a variety of prefabricated interior wall solutions. We expect competition to increase as new entrants or solutions enter the interior construction market. See Item 1A. "Risk Factors".

**Seasonality** 

The construction industry has also historically experienced seasonal slowdowns related to winter weather conditions and holiday schedules, which affect shipping and on-site installation dates, in the fourth and first quarters of each calendar year. Our business has generally, but not always, followed this trend with a slight time lag, leading to stronger sales in the second half of the year versus the first half. Weather factors can also influence third-party exterior construction schedules and site conditions, which may in turn affect timing of interior builds.

Due to the fixed nature of certain of our manufacturing costs, such as our facilities leases and related indirect operating costs, periods of higher revenue volume tend to generate higher gross profit and operating income margins while periods of lower volume tend to result in lower gross profit and operating income margins. Quarters that contain consistent monthly manufacturing volumes tend to generate higher gross profit than those where manufacturing levels vary significantly from month to month.

**Patent and Intellectual Property Rights** 

Our success depends, in part, upon our intellectual property rights relating to our products, production processes, our technology, including our ICE Software, and other operations. We rely on a combination of trade secret, nondisclosure and other contractual arrangements, as well as patent, copyright and trademark laws, to protect our proprietary rights and competitive advantage. We register our patents and trademarks as we deem appropriate and take measures to defend patents where we deem others are

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infringing on our patents. The following table presents the status as of December 31, 2022 of our issued and pending patents relating to various aspects of DIRTT Solutions and ICE Software:

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| | | |
|:---|:---|:---|
|  | **Granted** | **Applications** |
| **Jurisdiction** | **Patents** | **Pending** |
| Canada | 67 | 47 |
| United States | 126 | 16 |
| European Union | 48 | 28 |
| Singapore | 22 | 4 |
| Patent Cooperation Treaty | - | 8 |
| Other | 87 | 4 |
| **Total** | **350** | **107** |

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Our issued patents expire between 2024 and 2039. We do not believe that the expiration of any individual patent will have a material adverse effect on our business, financial condition or results of operations. As we develop innovations and new technology, we expect to file additional and supplemental patents to protect our rights in those innovations and new technology.

**Government Regulations** 

The operation of our business is subject to stringent and complex laws and regulations pertaining to health, safety, and the environment. As an owner or operator of various manufacturing facilities, we must comply with these laws and regulations at the federal, state, provincial and local levels in both the United States and Canada. Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil, or criminal enforcement actions, including the assessment of monetary penalties, the imposition of investigative or remedial requirements, or the issuance of orders limiting current or future operations. Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances or industrial wastes have been mismanaged or otherwise released.

While we do not believe that compliance with federal, state, provincial, or local environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations, we cannot provide any assurances that future events, such as changes in existing laws or regulations, the promulgation of new laws or regulations, or the development or discovery of new facts or conditions related to our operations will not cause us to incur significant costs.

**Legal and Regulatory Proceedings** 

We may be involved from time to time in various lawsuits, claims, investigations, and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with Construction Partners, relationships with competitors, employees, and other matters. We may, for example, be a party to various litigation matters that involve product liability, tort liability, and claims under other allegations, including claims from our employees either individually or collectively. We do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations. For additional information regarding our current legal proceedings, see Item 3. "Legal Proceedings."

**Implications of Being an Emerging Growth Company** 

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act enacted in April 2012. Certain specified reduced reporting and other regulatory requirements are available to public companies that are emerging growth companies. These provisions include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•an exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•an exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about our audit and our financial statements; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•reduced disclosure about our executive compensation arrangements.

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We will continue to be an emerging growth company until the earliest of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the last day of our fiscal year in which we have total annual gross revenues of $1.07 billion (as such amount is indexed for inflation every five years by the SEC to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest $1 million) or more;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•December 31, 2024;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the date on which we have, during the prior three-year period, issued more than $1 billion in non-convertible debt; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the date on which we are deemed to be a "large accelerated filer" under the rules of the SEC, which means the market value of our common shares that is held by non-affiliates (or public float) exceeds $700 million as of the last day of our second fiscal quarter in our prior fiscal year.

We have elected to take advantage of certain of the reduced disclosure obligations in this Annual Report and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our shareholders may be different than what you might receive from other public reporting companies in which you hold equity interests. However, we have irrevocably elected not to avail ourselves of the extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

**Human Capital Resources**

As of December 31, 2022, DIRTT employed 934 employees, 99% full time, 1% part time. We had 922 full-time employees consisting of 595 employees in production, 74 employees in sales and marketing, 90 employees in technology and development, 90 employees in operations support, and 73 general and administrative employees. At year-end, approximately 50% of our workforce are salaried employees and approximately 50% are compensated on an hourly basis. As of December 31, 2022, approximately 28% of our workforce was based in the United States, and approximately 72% was based in Canada. Our 2022 hiring efforts were directed towards both our manufacturing and non-manufacturing functions. This reflects the streamlining of our operations space, accounting for 79% of our hiring activities. The Company's recent gender diversity data shows that 25% (2021 – 28%) of our employees are female company wide. In 2022 we hired 213 employees, with 29% of new employees being female.

**<u>Diversity & Inclusion</u>**

DIRTT recognizes the importance of progressing conversations and initiatives around diversity and inclusion. "Grow through diversity" is one of our core values. Our strategy encompasses leadership training around key topics related to unconscious bias, allyship, and the value of attracting and retaining a diverse and inclusive organization. The strategy further focuses on the establishment and deployment of learning streams, mentoring circles, and incorporation of inclusive language into our offer packages and benefit materials. Our efforts begin at the early stages of the employee life cycle, where diversity candidates are highlighted and presented to hiring managers for review. We seek to hire based on talent, skill, capability needs, and fit. DIRTT has also incorporated diversity into various internal programs including succession planning and risk profiles.

**<u>Culture & Engagement</u>**

DIRTT has put measures in place to assess and enhance the level of engagement and satisfaction of our employees. Specific activities include the deployment of a performance management tool, catered to drive discussions around team goals, performance and development opportunities, and greater transparency around policy and procedures, tied to cost and risk mitigation.

In the fourth quarter of 2022, we began the implementation of a new employee engagement platform called Employee Voice that will deploy company-wide surveys focused on core themes of workplace civility, communication, work-life balance, retention, job satisfaction, employee engagement and diversity and inclusion. The platform and targeted initiatives are being put in place company-wide to assess the progression of themes from the survey on overall employee engagement and experience.

Additional initiatives that we attribute to the progression of culture and engagement include launching learning and development opportunities, enhanced communication platforms, employee recognition programs, a company-wide philanthropic organization, and a strong focus on virtual social events to further support engagement and connection of remote employees.

Connecting to our community is a critical piece of the DIRTT story. We continue to focus on establishing a stronger community investment program that demonstrates our drive to put community at the center of the business. This involves developing a strategy, carving out a roadmap of initiatives, and establishing a committee of employees across the organization. As part of our strategy, we are focusing our efforts on establishing meaningful engagement opportunities, creating inclusive giving campaigns, driving sustainable impact, and enabling our employees to connect on philanthropic efforts. In the fourth quarter of 2022, we

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successfully completed our holiday giving campaign which was a coordinated in-person and virtual effort in support of food banks across North America, focusing on the cities in which we operate. The support for this campaign helped to reconnect DIRTT employees' desire to give back with tangible outcomes for their communities. We take measures to address the mental health of our employees through a variety of company-wide initiatives.

Our core commitment to organizational safety resulted in a Total Recordable Incident Frequency ("TRIF") of 0.1 in 2022, more than 97% below the industry average and a significant improvement from 0.5 TRIF in 2021. Our enhanced health and safety protocols have been effective thus far in mitigating the spread of COVID-19 infections within our facilities and have helped us to avoid any material production disruptions.

We use a range of compensation incentives which vary by role, including annual variable compensation determined based on a combination of achieving team objectives and financial targets for the Company; quarterly bonuses for our manufacturing personnel paid on adherence to targets related to safety, quality, delivery, inventory and productivity; and commissions based on sales. We also use various forms of stock-based compensation as a retention tool and to further align employee interests with the interests of our shareholders. We monitor our retention by way of voluntary turnover, which was 17% in 2022.

None of our employees are covered by collective bargaining agreements. We have never experienced labor-related work stoppages or strikes, and we believe we currently have a positive relationship with our employees.

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**Item 1A. Risk Factors.** 

Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Annual Report, including our consolidated financial statements and the related notes and Part II, Item 7. entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in any documents incorporated in this Annual Report by reference, before deciding whether to invest in our common shares. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the market price of our common shares could decline, and you may lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Certain statements below are forward-looking statements. See also "Special Note Regarding Forward-Looking Statements" in this Annual Report.

**Risks Related to Our Business and Industry** 

**Our business, financial condition, results of operations and growth could be harmed by the effects of the COVID-19 pandemic and related government measures.**

The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption. The extent to which COVID-19, or other public health pandemics or epidemics, impact our employees, operations, customers, suppliers, and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the COVID-19 pandemic (and whether there is a resurgence or multiple resurgences of the virus in the future, including as a result of strain variations); the actions taken by governments and public health officials in response to the pandemic; the availability and effectiveness of vaccines, approvals thereof and the speed of vaccine distribution; the impact on construction activity (including related supply chain and labor shortages and their effects on construction schedules and timing); the effect on our customers' demand for our DIRTT solutions; our ability to manufacture and sell our products; and the ability of our customers to pay for our products. For example, while many of our products support life sustaining activities and essential construction, we, and certain of our customers or suppliers, may be impacted by state or provincial actions, orders and policies regarding the COVID-19 pandemic, including temporary closures of non-life sustaining businesses, shelter-in-place orders, and travel, social distancing and quarantine policies, the implementation and enforcement of which may vary by individual jurisdictions. On September 9, 2021, President Biden issued executive orders establishing, among other things, new vaccination requirements applicable to U.S. federal workers and contractors, large employers and healthcare workers. As a federal contractor, we are subject to the executive order. Although the Biden administration later updated its guidance to indicate that it will not enforce this vaccination requirement, additional vaccine mandates may be announced in jurisdictions in which our businesses operate. Our implementation of these rules may result in attrition, including attrition of skilled labor, and difficulty securing future labor needs. Additionally, our implementation of these rules may impact our ability to maintain satisfactory arrangements with third-party vendors and service providers, to the extent they are subject to vaccination requirements and they or their employees are unable or unwilling to comply. Any of the foregoing events could have a material adverse effect on our business, liquidity or results of operations.

**We are under the leadership of a reconstituted Board of Directors who are in the process of implementing a variety of operational, organizational, cultural and other changes to our business, and we may not be able to achieve some or all of the anticipated benefits of this transformation plan. We are also undergoing changes at a senior management level, including the appointment of a new Chief Executive Officer in June 2022.**

Our Board of Directors was entirely reconstituted at our annual and special meeting of shareholders held on April 26, 2022 and, following that meeting, there was significant turnover in the Company's leadership. In addition to overseeing the changes to DIRTT's leadership, the reconstituted Board of Directors has undertaken an extensive review of DIRTT's operations, a process which is still ongoing (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations – Outlook"), and are in the process of implementing a variety of operational, organizational, cultural and other changes to our business, including plans to meet pipeline demand and expand revenues. The timely integration of senior management will be critical in the successful implementation of the Board of Directors' plans. We may not be successful in achieving some or all of the anticipated benefits of these plans, which may have an adverse effect on our results from operations and financial condition.

The effectiveness of certain elements of DIRTT's administrative systems:

DIRTT has identified the need to upgrade its inventory management and cost accounting systems at some point in the future to enable scalable growth. Other information technology may require investment in the future. However, the success, in whole or in part, of this investment cannot be guaranteed.

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**We may not be successful in implementing our strategic plan or managing growth**

Implementation of our strategy will require maturity of systems and processes across the organization. There is also no assurance that successful implementation will lead to sustainable, profitable growth, and may itself be disruptive to the Company. Failure to implement our strategic plan could materially and adversely affect our near-term sales, commercial activities, and ability to develop and sustain profitable growth. In addition, the success and timing of our implementation may be dependent upon external factors outside of our control, including the COVID-19 pandemic and its negative impact on construction activities as a whole. However, we remain confident that DIRTT's value proposition will be as or even more relevant in the post-pandemic world.

Our strategy also depends in part on our ability to maintain and manage growth effectively. Growth in our headcount and operations may place significant demands on our management and operational and financial resources. Additionally, managing growth of our operations and personnel requires continuous improvement of our internal controls and reporting systems and procedures. Failure to effectively manage growth could result in difficulty providing current DIRTT Solutions and introducing future solutions, difficulty in securing clients and Construction Partners, declines in quality or client satisfaction, increases in costs or other operational difficulties. Any of these difficulties could lead to a loss of investor confidence and adversely affect our business performance, financial condition and results of operations.

**Our industry is highly competitive, and we may not be successful in educating potential clients about the benefits of our innovative and unique approach to interior construction as compared to conventional interior construction methods.** 

We operate in the highly competitive interior construction industry that is constantly developing and changing. We compete against conventional construction firms, individual tradespeople, modular systems, and commercial furniture manufacturers. New market entrants and conventional construction firms are also beginning to develop customizable wall paneling and other modular interior construction solutions, and we expect this trend to continue. In addition, we may face pricing pressure from competitors or new market entrants who take on projects at reduced prices or employ other competitive strategies. While we believe our innovative design, quality, schedule and cost certainty, and network of Construction Partners makes us well-positioned in the market, increasing competition could make it difficult to secure new projects at acceptable operating margins.

Our products are unique and offer an alternative to conventional construction techniques. Although offsite construction methods are gaining market acceptance, this still represents only a fraction of all construction methods and the overall construction market. Our ability to grow and increase market share depends, in part, on our success in continuing to increase demand for modular construction methods and products as an alternative to more traditional construction methods. While we intend to follow a strategy of innovative product development and strategic marketing efforts to enhance our position, there is no assurance that our solutions will attain a degree of market acceptance sufficient for sustained profitable operations. Failure to compete effectively by, among other things, meeting consumer preferences, developing and marketing innovative solutions, maintaining strong client service and distribution relationships, growing market share, and expanding our solutions capabilities could have a material adverse effect on our liquidity, financial condition, or results of operations.

**Our former co-founders' competitive behavior against us could have an adverse effect on our business, financial condition and results of operations.** 

Our co-founders and former executives, Mogens Smed and Barrie Loberg, have started an interior construction and manufacturing company that we believe competes with us. They, along with a number of our former employees and Construction Partners who have joined their company have in-depth knowledge about our business, including our customers, employees, products and prospects, and we may be adversely affected by increased competition arising out of this business venture. We are engaged in litigation with Messrs. Smed and Loberg, entities with which they are involved, and other individuals relating to, among other things, enforcement of non-competition and non-solicitation obligations, and alleged misappropriation of proprietary information by them or by us. See Note 20 to the Consolidated Financial Statements. If Messrs. Smed and Loberg further engage in a competitive business against us or if we are not successful in litigation, our business, financial condition and results of operations may be adversely affected.

**We depend heavily on our network of Construction Partners, and the loss or inattention of our Construction Partners, or the failure of our Construction Partners to meet their obligations to us, could materially and adversely affect our business, financial condition and results of operations.** 

We currently do not engage in many direct sales projects and rely almost exclusively on our network of Construction Partners to promote brand awareness, sell and market DIRTT Solutions, and provide design, installation, distribution and other services to clients on each project. While we are not dependent on any single Construction Partner, sales generated by approximately 10% of our Construction Partners comprised approximately 39% of our total revenues for 2022 (2021 – 40%). The loss of any top performing Construction Partners, particularly to our competitors, may negatively affect our sales, financial condition or results of operations. It may further impair our ability to maintain a market presence in a particular geographic region until a new Construction Partner relationship is established, which would require significant time and resources, given DIRTT is typically a standalone line of business in their portfolio.

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Although we provide our Construction Partners with training, education, and support, they may be unable to successfully sell our DIRTT Solutions, execute projects or manage client experiences and relationships. In addition, our Construction Partners and their clients may face financial difficulties or may become insolvent, which could result in the delay or cancellation of their plans to purchase DIRTT Solutions or lead to our inability to obtain payment of accounts receivable that they may owe. If we are unable to maintain a successful Construction Partner network, our business, financial condition, and results of operations could be materially and adversely affected.

**Increasing attention to environmental, social and governance (ESG) matters may impact our business**

We have announced various voluntary ESG targets in our annual Environmental, Social, and Governance (ESG) report outlining our commitments to sustainability, the environment, health and safety, and diversity and inclusion. However, we may not be able to meet such targets in the manner or on such a timeline as initially contemplated, including, but not limited to, as a result of unforeseen costs or technical difficulties associated with achieving such results. Any actual or perceived failure to meet our ESG targets could adversely impact our reputation and our customers' image of our products and result in the loss of business or impede our growth initiatives. Adverse publicity regarding ESG issues and similar matters, whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to secure new customer relationships. Further, our customers may be more selective for products that meet their ESG goals or standards, such as increasing demand for goods that result in lower emissions, and our products could be less competitive if we are unable to meet these standards. Despite our efforts to adapt to and address these concerns, our efforts may be insufficient. Additionally, the implementation of these initiatives may increase our costs. It is difficult to predict how our efforts with respect to social and sustainability matters will be evaluated by current and prospective investors or by our customers or business partners.

Furthermore, public statements with respect to ESG matters are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential "greenwashing," i.e., misleading information or false claims overstating potential ESG benefits. For example, in March 2021, the SEC established the Climate and ESG Task Force in the Division of Enforcement to identify and address potential ESG-related misconduct, including greenwashing. Certain non-governmental organizations and other private actors have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG statements, goals or standards were misleading, false, or otherwise deceptive. As a result, we may face increased litigation risk from private parties and governmental authorities related to our ESG efforts. In addition, any alleged claims of greenwashing against us or others in our industry may lead to further negative sentiment and diversion of investments. Additionally, we could face increasing costs as we attempt to comply with and navigate further regulatory ESG-related focus and scrutiny.

**Risks Relating to Our Products and Software**

**We may be unsuccessful in designing, introducing, or selling new, innovative solutions, solution features, or software.** 

Our future success depends in part on our continuing ability to promote and demonstrate the value proposition of DIRTT Solutions, as well as our ability to develop and sell new, innovative solutions, solution features, or software that differentiate our solutions and achieve market acceptance in a timely and cost-effective manner. We incur significant costs associated with the investment in our research and development in furtherance of our strategy that may not result in increased revenue or demand for DIRTT Solutions and that could negatively affect our results of operations. Rapidly changing technology, evolving regulatory and industry standards, and changing consumer trends, demands, and requirements require us to continuously innovate and develop new, high-quality solutions, solutions features and software. Additionally, such rapid technological changes, standards and preferences could render the complex and proprietary technology of our software and solutions obsolete. We may also be unable to successfully address these developments on a timely basis, or at all. New solutions, solution features, or software may also be less successful than we anticipated, and such offerings may fail to achieve market acceptance. If we fail to respond quickly and cost-effectively to a changing market and changing consumer preferences, our competitive position, financial condition, and results of operations could be materially and adversely affected.

**Our software and products may have design defects, deficiencies, or risks, and we may incur additional costs to fix any defects, deficiencies, or risks, or be subject to warranty or product liability claims.** 

Our software and solutions are complex and must meet the technical requirements of our clients and applicable building codes and regulations. Our solutions may contain undetected errors or design and manufacturing defects, and our software may experience quality or reliability problems, or contain bugs or other defects. Software defects may also cause errors in our manufacturing or miscalculations in ordering pricing and could lead us to incur losses and lose market share to competitors. Product or software defects could cause us to incur warranty costs, product liability costs, and repair and remediation costs. Although we maintain warranty reserves based on production, historical claims, and estimates, future warranty claims may exceed this amount. Similarly, while we maintain insurance of the types and amounts we consider commercially prudent and consistent with industry practice, such insurance coverage may not be sufficient to protect us against substantial claims. Such claims can be expensive to defend, could divert the attention of management and other personnel for significant periods, regardless of the ultimate outcome, and could result in negative

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publicity. Increased costs to address product warranty claims or to defend against product liability claims may result in increased expenses and adversely affect our financial condition and results of operations.

**We are subject to fluctuations in the prices of raw materials and commodities, which could adversely affect our liquidity, operating margins and financial condition.** 

We purchase raw materials, including aluminum, glass, and wood, from a number of local and global suppliers. The costs of these commodities can fluctuate due to changes in global supply and demand, inflation, peculation in commodities futures, and changes in tariffs or trade barriers, which can also interrupt supply. In addition, we have not historically entered into long-term agreements with vendors and may be exposed to short-term and long-term price fluctuations as a result.

Aluminum represents the largest component of our raw materials consumption. We have experienced fluctuations in the price of aluminum and anticipate that these fluctuations will continue in the future. In particular, during 2021 and 2022 we experienced significant price inflation across substantially all of our materials, largely due to pandemic-induced supply chain constraints, and it is unclear whether such price increases will be temporary or permanent in nature. From time to time, the U.S. government has imposed tariffs on steel and aluminum and limited the amounts of steel and aluminum coming into the United States based on the countries of origin of those imports. In 2022 and 2021, we sourced the majority of our aluminum from North America and sourced under 10% of our raw materials from outside North America. Nonetheless, substantial, prolonged upward trends in aluminum and other commodity prices, along with tariffs and import limitations, could significantly increase our costs and adversely affect our liquidity, operating margins, and financial condition.

**We rely on a limited number of outside suppliers for certain key components and materials, and failure or delay in obtaining the necessary components or materials could delay or prevent the manufacturing or distribution of our DIRTT Solutions.** 

We rely on certain key suppliers for raw materials and components, including aluminum, glass, wood, paint, and hardware. We maintain multiple suppliers for key materials, although for the year ended December 31, 2021, (i) two suppliers accounted for approximately 38% and 24% of our aluminum supply, respectively, and two additional suppliers provided approximately 14% each, (ii) two suppliers accounted for approximately 33% and 37% of our wood supply, (iii) one supplier accounted for approximately 94% of our paint and powder supply, and (iv) one supplier accounted for approximately 38% of our hardware supply**.** While we believe there are other vendors for most of our key requirements, certain materials and components meeting our quality standards are available only through a limited number of vendors. If we are required to obtain another source for these materials or components, we may not be able to obtain pricing on as favorable terms or on terms comparable to our competitors. Any failure or delay in obtaining the necessary raw materials or components in the quantities and quality required may result in increased costs and delays in manufacturing or distributing our products, which could have a material adverse effect on our liquidity, financial condition, or results of operations. A vendor may also choose, subject to existing contracts, to modify its relationship with us due to general economic concerns or specific concerns relating to that vendor or us, at any time. These modifications might include additional requirements from our suppliers that we provide them additional security in the form of prepayments or with letters of credit. Any significant change in the terms that we have with our key suppliers could materially and adversely affect our liquidity, financial condition, or results of operations.

**Risks Relating to Market Conditions** 

**Global economic, political and social conditions and financial markets may impact our ability to do business and adversely affect our liquidity, financial condition, and results of operations.** 

Our industry is cyclical and highly sensitive to macroeconomic conditions. Overall declines or reductions in construction and renovation due to economic downturns, unemployment and office vacancies, difficulties in the financial services sector and credit markets, and imposition of trade barriers can impact the demand for our products. Financial difficulties experienced by our suppliers, Construction Partners or clients could also result in, among other things, inadequate project financing, project delays, inability to pay accounts receivable or disruptions in our supply chain. Any general economic, political, or social conditions that may contribute to financial difficulties experienced by us, our suppliers, Construction Partners, or clients may adversely affect our liquidity, financial condition and results of operations.

**We are exposed to currency exchange rates, interest rates, tax rates, and other fluctuations, including those resulting from changes in laws.** 

Our revenues and expenses are collected and paid in different currencies, including the U.S. dollar and Canadian dollar. Fluctuations in the relative values of any such currency expose us to foreign exchange risk and could have a material and adverse effect on our cash flows, revenues and results of operations. We also have currency exchange exposure to the extent of a mismatch between foreign-currency denominated revenues and expenditures – in particular, where U.S. dollar revenues do not equal U.S. dollar expenditures. We are not currently using exchange rate derivatives to manage currency exchange rate risks. There are currently no significant restrictions on the repatriation of capital and distribution of earnings to foreign entities from any of the jurisdictions in which we operate. There can be no assurance that such restrictions will not be imposed in the future.

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Most of DIRTT's debt is on fixed interest rates. The Extended RBC Facility is subject to market interest rates. We are not currently using interest rate derivatives to manage interest rate risks. If interest rates rise this could have a material and adverse effect on our cash flows, revenues and results of operations and may adversely affect our ability to access financing.

Compliance with new or amended tax laws and regulations could have a material adverse effect on our business. We base our tax positions upon our understanding of the tax laws (including, applicable tax treaties) of the countries in which we have assets or conduct business activities. However, our tax positions are subject to review and possible challenges by taxing authorities, including as to the computation and allocation of income, transfer pricing and other complex issues. This includes adverse changes to the manner in which Canada, the United States and other countries tax local and foreign corporations and interpret or change their tax laws and applicable tax treaties, including in light of the increased focus by the U.S. Congress, the Canadian government, the Organization for Economic Co-operation and Development and other government agencies in jurisdictions where we do business on issues related to the taxation of multinational corporations. We cannot determine in advance the extent to which such jurisdictions may amend their tax laws, review our tax positions, or assess additional taxes or interest and penalties on such taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, our cash management strategies, local tax rates, or interpretations of tax laws.

**Risks Relating to Intellectual Property and Information Security**

**We may be unable to protect our intellectual property adequately from infringement by third parties, and we may also be subject to claims that we infringe on intellectual property rights of others.** 

We rely on a combination of contract, copyright, patent, trademark and trade secret laws, confidentiality procedures and other measures to protect our intellectual property. There can be no assurance that our various patents, copyrights or trademarks will offer sufficient protection and prevent misappropriation of our proprietary rights in our products, software or processes. We also may not be granted patents, copyrights or trademarks on our pending or proposed applications, and granted applications may be challenged, invalidated or circumvented in the future. Despite our precautions, it may be possible for unauthorized third parties to copy our applications and use information that we regard as proprietary to create products or services that compete with ours. We enforce our intellectual property rights where appropriate, but the cost of doing so may be substantial and could outweigh the potential benefits, and we may be unsuccessful in our enforcement efforts. Failure to protect or maintain the proprietary nature of our intellectual property could adversely affect our ability to sell original products and materially and adversely affect our business, financial condition and results of operations.

Additionally, our competitors or other third parties may own or claim to own intellectual property in technology areas relating to our technology, including ICE Software, manufacturing processes, and DIRTT Solutions. Although we do not believe that our software or DIRTT Solutions infringe on the proprietary rights of any third parties, claims may arise regarding infringement or invalidity claims (or claims for indemnification resulting from infringement claims). Such assertions or prosecutions, regardless of their merit, may subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us from assembling or licensing certain of our products, subject us to injunctions restricting our sale of products, cause severe disruptions to our operations or the marketplaces in which we compete, or require us to satisfy indemnification commitments with our clients, including contractual provisions under various license arrangements. A damages award against us could include an award of royalties or lost profits and, if the court finds willful infringement, treble damages and attorneys' fees. This may cause us to expend significant costs and resources, and could adversely affect our business, financial condition or results of operations.

**If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, our operations could be disrupted and our reputation and profitability could be negatively affected.** 

In the ordinary course of our business, we generate, collect and store confidential and proprietary information, including intellectual property and business information. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. We use automated software and hardware solutions to protect our on-premise and cloud infrastructure; conduct routine third-party evaluations and vulnerability testing to identify and mitigate risks; and deploy training programs throughout the company. We have experienced cyber-based attacks, but to our knowledge, we have not experienced any material disruptions or breaches of our information technology systems or platforms. However, there is no guarantee that our security systems, processes or procedures are adequate to safeguard against all data security breaches, misuse of data, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information of a client, Construction Partner, employee, supplier or Company information could result in financial losses, exposure to litigation risks and liability (including regulatory liability), damage to our reputation, and disruptions in our operations, all of which could have a material adverse effect on our business, financial condition and results of operations. While we maintain cybersecurity insurance for the types of coverage and amounts we consider commercially prudent and consistent with industry practice, such insurance may not be sufficient to cover all losses relating to an information security breach.

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The regulatory environment related to information security, data collection and use, and privacy is increasingly rigorous, with new and frequently changing requirements, and compliance with those requirements could result in additional costs. The costs associated with information security, such as increased investment in technology, the costs of compliance with privacy laws, and costs incurred to prevent or remediate information security breaches, could be substantial and adversely affect our business. A significant compromise of sensitive employee, Construction Partner, client or supplier data in our possession could result in legal damages and regulatory penalties. In addition, the costs of defending such actions or remediating breaches could be material.

**Damage to our information technology and software systems could impair our ability to effectively provide DIRTT Solutions and adversely affect our reputation, relationships with clients, financial condition and results of operations.** 

Our information technology and software networks and systems, which include the processing, transmission and storage of information, are integrated with our manufacturing processes and essential to our business operations. These systems are vulnerable to, among other things, damage or interruption from power outages, network failures or natural disasters, loss or corruption of data, human error, employee misconduct and difficulties associated with upgrades, installations of major software or hardware, and integration with new systems. While we maintain retention backups to geo-diverse digital and physical locations and have a recovery data center, the data center and other protective measures we take could prove to be inadequate. Any disruption in our systems or unauthorized disclosure of information could result in delayed manufacturing and delivery of our DIRTT Solutions, legal claims, a loss of intellectual property and a disruption in operations, all of which could adversely affect our reputation, relationships with clients, financial condition and results of operations.

**Risks Relating to Government Regulations and Enforcement**

**We may incur significant costs complying with environmental, health and safety laws and related claims, and failure to comply with these laws and regulations could expose us to significant liabilities, which could materially adversely affect our business and results of operations.** 

We are subject to laws, regulations, and other requirements with respect to workers' health and safety and environmental matters in the United States, Canada and other countries in which we operate. Environmental laws and regulations impose, among other things, restrictions, liabilities and obligations in connection with the production, processing, preparation, handling, storage, transportation, disposal and management of wastes and other substances, and the prevention and remediation of environmental effects. Health and safety laws and regulations impose, among other things, requirements designed to ensure the protection of workers. New or more stringent laws and regulations, including those relating to climate change and greenhouse gas emissions, may be adopted in the future and could impact our facilities, raw material suppliers, the transportation and distribution of our solutions, and our clients, which could reduce demand for our solutions or cause us to incur additional operating costs. In addition, certain foreign laws and regulations may affect our ability to export products outside of or import products into the United States or Canada. Failure to comply with these requirements may result in civil or criminal liability, damages and fines, and our operations could be curtailed, suspended or shutdown and our reputation, ability to attract employees, and results of operations could be adversely affected. Private lawsuits, including claims for remediation of contamination, personal injury or property damage, or actions by regional, national, state and local regulatory agencies, including enforcement or cost-recovery actions, may materially increase our costs.

These factors may materially increase the amount we must invest to bring our processes into compliance with legal requirements and impose additional expenses on our operations. In addition, any changes in these laws or regulations or changes in our manufacturing processes may require us to request changes to our existing permits or obtain new permits. We may also be unable to obtain or maintain, from time to time, all required environmental regulatory approvals. A delay in obtaining any required environmental regulatory approvals or the failure to obtain and comply with such approvals could materially adversely affect our business and results of operations.

**Risks Relating to Financial Results**

**We have had negative cash flow from operating activities.**

We had negative cash flow from operating activities for prior years, including the years ended December 31, 2022 and 2021. Continued negative operating cash flow may compromise our ability to make interest and principal payments on the convertible unsecured subordinated debentures issued on January 25, 2021 and December 1, 2021 (collectively, the "Debentures") on a timely basis, or at all, and to execute our strategic plan. Until we are able to generate positive cash flow from operating activities over a sustained period, our ability to finance our operations will be dependent on our cash reserves and available credit facilities and, if required, our ability to obtain additional external financing. Although we had $3.2 million in cash provided from operating activities during the fourth quarter of 2022 and we anticipate we will have positive cash flow from operating activities over at least the next twelve months, we cannot guarantee that such future cash flow will be sufficient or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.

In response to our negative cash flow from operations, on February 22, 2022, we commenced the process of closing our Phoenix aluminum manufacturing facility, shifting related manufacturing to both our Savannah and Calgary aluminum facilities. Additionally, we eliminated approximately 18% of our salaried workforce including manufacturing and office positions in February 2022, with

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further reduction of 36 positions in July 2022. Additionally, to offset cost inflation on our materials, we implemented product price increases comprised of 5% effective November 1, 2021, 5% effective June 1, 2022, and a further 10% effective July 21, 2022. We have also undertaken several strategic actions and a Private Placement (as defined herein) to improve our balance sheet in the short term, see "Management's Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources". Although we anticipate these actions will strengthen our balance sheet and liquidity position, we cannot guarantee that such future cash flow will be sufficient or other changes to our circumstances will not necessitate additional financial resources to fund our operating activities.

**We have experienced a history of losses, and despite certain periods of profitability in recent years, we may not be able to generate sufficient revenue to achieve and sustain profitability.** 

We have incurred significant losses since commencing business. We incurred net losses of $55.0 million, $53.7 million and $11.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022, we had an accumulated deficit of $166.3 million. These losses and accumulated deficits were due in part to the substantial investments made to grow our business and acquire clients, to further develop our service offerings through product and software development, to ensure that we have sufficient production capacity and capability to deliver on our commitment of rapid delivery times and to preserve our production, innovation and commercial capabilities through the economic disruption caused by the global COVID-19 pandemic in anticipation of a significant increase in construction activity as the pandemic impacts abate. Net loss for the year ended December 31, 2022 includes $13.5 million of restructuring costs associated with initiatives taken by the reconstituted Board and management to restructure the business and improve profitability and cashflows. Past results may not be indicative of our future performance, and there can be no assurance that we will generate net income in the future.

DIRTT's gross margins and resulting profitability have historically been negatively affected by the impacts of material cost inflation and the increased usage of discounting to drive higher demand. DIRTT has taken steps to improve gross margin by reducing discounts and increasing prices, including a 5% product price increase in Q4, 2021 and Q2, 2022 and a further 10% price increase in July 2022. Further, additional procurement and supply chain review procedures were established during the third quarter of 2022 to better monitor the volatility in our underlying material input costs. While the Company believes its pricing, discount structure and supply chain monitoring controls are sufficient, if we are unable to maintain or improve upon the gross profit margins delivered in the fourth quarter of 2022, if inflationary increases continue without corresponding increases in our pricing, or if such reduced discounting and price increases cause a material impact on demand, DIRTT's results of operations and financial condition could be adversely impacted.

**We have experienced, and may experience in the future, quarterly and yearly fluctuations in results of operations and financial condition.** 

Our results of operations and financial condition may continue to fluctuate from one quarter or year to another due to a number of factors, some of which are outside of our control. For example, we usually experience seasonal slowdowns in the first and fourth quarters of each calendar year, leading to stronger sales in the second half of the year versus the first half, and weather conditions may also delay delivery and installation on some projects. Furthermore, sales that we anticipate in one quarter may be pushed into another quarter, affecting both quarters' results, and our actual or projected results of operations may fail to match our past performance. These events could in turn cause the market price of our common shares to fluctuate. In particular, if our results of operations do not meet the expectations of securities analysts or investors, who may derive their expectations by extrapolating data from recent historical results of operations, the market price of our common shares will likely decline. Due to our high fixed manufacturing costs and operating expenses, quarterly volatility in sales volumes could result in periods of low operating cash flow and negatively affect our liquidity. Due to these risk factors, quarter-to-quarter or year-to-year comparisons of our results of operations may not be an indicator of future performance.

**We have recognized, and may recognize in the future, impairment charges for our goodwill and certain other non-current assets.**

During the year ended December 31, 2021, we impaired the $1.4 million net carrying value of goodwill on our consolidated balance sheet. Significant negative industry or economic trends, disruptions to our business, planned or unexpected significant changes in the use of the assets, and sustained market capitalization declines may result in the impairment of non-current assets. For the past two years we have had an indicator of impairment for our non-current assets. Any further charges relating to impairments could have a material adverse impact on our results of operations in the period in which the impairment is recognized. We did not have any impairment charges for non-current assets during the year ended December 31, 2022.

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**Risks Related to Our Common Shares and Corporate Structure** 

**Our share price has been and may continue to be volatile, which could cause the value of your investment to decline. If we fail to comply with the continuing listing standards of Nasdaq, our securities could be de-listed.**

Our common shares are currently listed on the TSX under the symbol "DRT" and on Nasdaq under the symbol "DRTT." The price of our common shares has in the past fluctuated significantly, and may fluctuate significantly in the future, depending upon a number of factors, many of which are beyond our control and may adversely affect the market price of our common shares. These factors include: (i) variations in quarterly results of operations; (ii) deviations in our earnings from publicly disclosed forward-looking guidance; (iii) changes in earnings estimates by analysts; (iv) our announcements or our competitors' announcements of significant contracts, acquisitions, strategic partnerships or joint ventures; (v) general conditions in the offsite construction and manufacturing industries; (vi) sales of our common shares by our significant shareholders; (vii) fluctuations in stock market price and volume; and (viii) other general economic conditions.

In the past, following periods of volatility in the trading price of a company's securities, securities class action litigation has been brought against that company. If our share price is volatile, we may become the target of securities litigation in both the United States and Canada. Securities litigation could result in substantial costs and divert management's attention and resources from our business and could have an adverse effect on our business, financial condition and results of operations.

Further, if the closing bid price of our common shares is below the $1.00 Nasdaq minimum requirement for 30 consecutive business days, we may become subject to de-listing proceedings. On September 7, 2022, we received a letter from Nasdaq that we have not been in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) for a period of 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we are provided a compliance period of 180 calendar days from the date of the notice to regain compliance with the minimum closing bid price requirement. If we do not regain compliance during the compliance period, we may be afforded a second 180 calendar day period to regain compliance if, among other things, we meet certain listing requirements of, and elect to transfer to, the Nasdaq Capital Market. We can achieve compliance with the minimum bid price requirement if, during either compliance period, the closing bid price per share of our common shares is at least $1.00 for a minimum of ten consecutive business days. We intend to monitor the closing bid price of our common shares and assess potential actions to regain compliance, but there is no assurance that we will be able to regain compliance, including under the specified time frames.

Any de-listing of our securities could have an adverse effect on the market price of, and the efficiency of the trading market for, our securities, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and less coverage of us by securities analysts, if any. Also, if in the future we were to determine that we need to seek additional equity capital, having been de-listed or being subject to de-listing proceedings could have an adverse effect on our ability to raise capital in the public or private markets.

**We are governed by the corporate laws of Alberta, Canada, which in some cases have a different effect on shareholders than the corporate laws of the United States.** 

We are governed by the ABCA and other relevant laws, which may affect the rights of shareholders differently than those of a company governed by the laws of a U.S. jurisdiction, and may, together with our charter documents, have the effect of delaying, deterring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance. The material differences between the ABCA and Delaware General Corporation Law ("DGCL"), that may have the greatest such effect include, but are not limited to, the following: (i) for certain extraordinary corporate transactions (such as amalgamations or amendments to our articles), the ABCA generally requires the voting threshold to be a special resolution passed by not less than two-thirds of the votes cast by the shareholders who voted in respect of the resolution, whereas DGCL generally only requires a majority vote; and (ii) under the ABCA, registered holders or beneficial owners (as defined in the ABCA) of not less than 5% of our common shares in aggregate can requisition our directors to call a special meeting of shareholders, whereas such right does not exist under the DGCL. We cannot predict whether investors will find our company and our common shares less attractive because we are governed by the corporate laws of Alberta, Canada.

**Because we are a corporation incorporated in Alberta and some of our directors and officers are residents of Canada, it may be difficult for investors in the United States to enforce civil liabilities against us or our directors and officers based solely upon the federal securities laws of the United States. Similarly, it may be difficult for Canadian investors to enforce civil liabilities against our directors and officers residing outside of Canada.** 

We are a corporation amalgamated and existing under the laws of Alberta with our principal place of business in Calgary, Alberta, Canada. Some of our directors and officers are residents of Canada and a substantial portion of our assets and those of such persons are located outside the United States. Consequently, it may be difficult for U.S. investors to effect service of process within the United States upon us or our directors or officers who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liabilities under the Securities Act of 1933. Investors should not assume

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that Canadian courts: (i) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws.

Similarly, some of our directors and officers are residents of countries other than Canada and all or a substantial portion of the assets of such persons are located outside Canada. As a result, it may be difficult for Canadian investors to initiate a lawsuit within Canada against these non-Canadian residents. In addition, it may not be possible for Canadian investors to collect from these non-Canadian residents judgments obtained in courts in Canada predicated on the civil liability provisions of securities legislation of certain of the provinces and territories of Canada. It may also be difficult for Canadian investors to succeed in a lawsuit in the United States, based solely on violations of federal, provincial or territorial securities laws.

**General Risks**

**Difficulties in recruiting and retaining qualified officers or employees, or experiencing labor shortages or disruptions, could have a material adverse effect on our business and results of operations.** 

Our success will depend in part on our ability to attract, develop, and retain qualified personnel as needed. We have undergone significant changes at a senior management level during the year as discussed elsewhere in this Annual Report. Although we anticipate smooth transitions, any changes to members of our senior management may be disruptive to our operations, including by diverting our Board's and management's time and attention and a decline in employee morale. If there are any delays in this process, our business could be negatively impacted. We may be affected by labor shortages or disruptions, particularly in locations where we operate manufacturing facilities. If we fail to attract or retain qualified personnel, or experience labor shortages or disruptions, we could incur higher recruiting expenses, a loss of manufacturing capabilities, or inability to respond to significant increases in demand, all of which could have a material adverse effect on our business and results of operations.

**We may have additional capital needs in the future and may not be able to obtain additional capital or financing on acceptable terms.** 

We plan to continually invest in business growth and may require additional funds to respond to business opportunities, such as expanding our sales and marketing activities, developing new software, acquiring complementary businesses, products or technology, and expanding or enhancing our manufacturing capabilities, including factory automation. To the extent that our existing capital is insufficient to meet our requirements, we may need to undertake equity or debt financings to secure additional funds. Further issuances of equity or convertible debt securities may result in significant share dilution. Additional new equity securities issued could have rights, preferences and privileges superior to those of our currently issued and outstanding common shares. Additional debt financings may involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We cannot provide any assurance that sufficient debt or equity financing will be available for necessary or desirable expenditures or acquisitions, or to cover losses, and accordingly, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our liquidity could be materially and adversely affected.

**We may engage in future mergers, acquisitions, agreements, consolidations, or other corporate transactions that could adversely affect our business, financial condition, and results of operations.** 

While we currently have no specific plans to acquire any businesses, we may, in the future, seek to expand our business and capabilities through acquiring compatible technology, products or businesses. Additionally, we may explore other corporate transactions, including mergers, agreements, consolidations, or joint ventures, that we believe may be beneficial to our business or further specific business goals. Acquisitions involve certain risks and uncertainties, including, among other things, (i) difficulty integrating the newly acquired businesses and operations in an efficient and cost-effective manner; (ii) inability to maintain relationships with key clients, vendors and other business partners of the acquired businesses; (iii) potential loss of key employees of the acquired businesses; (iv) exposure to litigation or other claims in connection with our assumption of certain claims and liabilities of the acquired businesses; (v) diversion of management's time and focus; and (vi) possible write-offs or impairment charges related to the acquired businesses. The occurrence of any of these risks could adversely affect our business, financial condition, and results of operations.

**Item 1B. Unresolved Staff Comments.** 

None.

**Item 2. Properties.** 

Our principal executive offices are located in Calgary, Alberta, where we lease approximately 73,000 square feet of office and manufacturing space. Our lease expires in September 2027. Our principal manufacturing facilities are currently located in Calgary,

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Alberta; and Savannah, Georgia. On February 22, 2022 we announced our intention to close the Phoenix manufacturing facility and DXC and on August 23, 2022 we announced our intention to temporarily suspend operations in Rock Hill, South Carolina as discussed in Item 1. "Business" in this Annual Report.

Our wall surfaces (which we call panels), casework and timber solutions are manufactured in Calgary, while aluminum, glass and power components are manufactured in Calgary and Savannah. In Calgary, we lease an aggregate of approximately 400,000 square feet of manufacturing space across three facilities (excluding our principal offices), which leases expire in January 2024 and January 2026. In Phoenix, we lease approximately 130,000 square feet of manufacturing space across two facilities, which leases expire in March 2027. We are currently utilizing the Phoenix space as a storage facility and have sub-leased the remaining premises. In Savannah, we lease approximately 81,000 square feet of manufacturing space, which lease expires in February 2029. In October 2019, we entered into a 15-year lease, which DIRTT may extend for two additional 5 year periods at its option, for a panel factory of approximately 130,000 square feet in Rock Hill, South Carolina. Should the need arise, we have the expansion rights to lease an additional 130,000 square feet of space. In March 2020, we entered into an 8 year lease, which DIRTT may extend an additional 5 years at its option, of approximately 18,000 square feet of space for a DXC in Dallas, Texas.

Our ICE development offices are located in Calgary, Alberta and Salt Lake City, Utah. In our Salt Lake City development office, we lease approximately 6,600 square feet of office space pursuant to a lease that expires in December 2023. In New York City, New York, we lease approximately 4,100 square feet of space to operate a DXC; this lease expires in February 2024. In Chicago, Illinois, we own approximately 6,200 square feet of office space, which we use to operate a DXC.

Through distributed manufacturing, we can shift production of some components among our manufacturing sites, reduce transportation times and costs, and meet targeted lead times. We believe that our current and planned facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.

**Item 3. Legal Proceedings.** 

We are pursuing multiple lawsuits against our former founders, Mogens Smed and Barrie Loberg, their new company Falkbuilt Ltd. ("Falkbuilt"), and other related individual and corporate defendants for violations of fiduciary duties and noncompetition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of our confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the protection of our trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices.

As of December 31, 2022, our litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates was comprised of three main lawsuits: (i) an action in the Alberta Court of Queen's Bench instituted on May 9, 2019 against Falkbuilt, Messrs. Smed and Loberg, and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, and duties of loyalty, fidelity and confidentiality, and the misappropriation of our confidential information (the "Canadian Non-Compete Case"); (ii) an action in the U.S. District Court for the Northern District of Utah instituted on December 11, 2019 against Falkbuilt, Smed, and other individual and corporate defendants alleging misappropriation of our confidential information, trade secrets, business intelligence and customer information (the "Utah Misappropriation Case"); and (iii) an action in the U.S. District Court for the Northern District of Texas instituted on June 24, 2021 alleging that Falkbuilt has unlawfully used our confidential information in the United States and intentionally caused confusion in the United States in an attempt to steal customers, opportunities, and business intelligence, with the aim of establishing a competing business in the United States market (the "Texas Unfair Competition Case"). We intend to pursue the cases vigorously.

In the Canadian Non-Compete Case, we have conducted extensive document production and questioning of the defendants that support our claims, as follows: (i) Smed and Loberg, and others, breached their duties owed to DIRTT, including their contractual and fiduciary duties; (ii) Smed, Loberg, and others began developing the new competing company immediately after Smed's departure; (iii) before it was called Falkbuilt, the new competing company operated through a covert group comprised of then-current DIRTT employees and Construction Partners known as the TTIMit Group (which stands for "This Time I Mean It"); (iv) members of the TTIMit Group took steps to conceal their communications by creating and using alias names, using private and personal email addresses and phone numbers, and holding secret meetings and gatherings; (v) the TTMit Group also used then-current DIRTT employees to build out Falkbuilt's warehouse premises and offices, source and purchase equipment for Falkbuilt, assist with market research and develop Falkbuilt's products, build vignettes and drawings, address Falkbuilt's software and computer needs, and name Falkbuilt; and (vi) members of the TTIMit Group conspired together to solicit DIRTT employees and Construction Partners, design and sell competing products using DIRTT's confidential information, including DIRTT's pricing lists, DIRTT's product designs, DIRTT's personnel information, and revenue forecast information for DIRTT's Construction Partners. DIRTT is seeking, among other things, an order stopping the defendants from competing with DIRTT, judgment for damages and losses, and an accounting and disgorgement of the defendants' gains from their wrongful misconduct. In April 2022, DIRTT filed a summary judgment application seeking an expedited, pre-trial, final determination of our claims against the defendants. We expect this application to be heard in the first half of 2023.

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In the Utah Misappropriation Case, the Court dismissed certain of the defendants, Falkbuilt Ltd., Falkbuilt, Inc. and Mogens Smed without prejudice, finding that Utah was an inconvenient forum. We appealed that ruling and the appeal was heard in November 2022. The remaining portion of the Utah Misappropriation Case is stayed pending resolution of the appeal.

In the Texas Unfair Competition Case, the Court dismissed our complaint finding that Texas was an inconvenient forum. We disagree with the decision and have filed a notice of appeal with the Fifth Circuit Court of Appeals. The appeal is stayed pending resolution of the appeal in the Utah Misappropriation Case.

Falkbuilt also filed a lawsuit against us on November 5, 2019 in the Court of Queen's Bench of Alberta, alleging that DIRTT has misappropriated and misused their alleged proprietary information in furtherance of DIRTT's product development. Falkbuilt seeks monetary relief and an interim, interlocutory and permanent injunction of DIRTT's alleged use of the alleged proprietary information. We believe that the suit is without merit and filed an application for summary judgment to dismiss Falkbuilt's claim.

**Item 4. Mine Safety Disclosures.** 

Not applicable.

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**PART II**

**Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.** 

**Market Information; Holders of Record** 

Our common shares are traded on the TSX under the symbol "DRT" and on Nasdaq under the symbol "DRTT."

As of February 17, 2023, there were 97,961,655 common shares outstanding and 169 shareholders of record.

**Dividends** 

We have not declared or paid any cash dividends on our common shares to date. The declaration and payment of dividends is at the discretion of the Board, taking into account (i) our earnings, capital requirements and financial condition, (ii) restrictions on our ability to pay dividends under our RBC Facility (as defined below), and (iii) such other factors as the Board considers relevant. Our RBC Facility generally limits our ability to pay any dividends or make any other distribution on our outstanding common shares. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations – Credit Facility" for more information. If and when our Board declares cash dividends on our common shares, such dividends may be declared and paid in either U.S. dollars or Canadian dollars.

**Performance Graph** 

The following graph illustrates a comparison of the total cumulative shareholder return of our common shares with the cumulative return of the S&P/TSX Composite Index and the S&P 600 Materials Index for the period commencing December 31, 2016 and ending on December 31, 2022. The graph assumes an initial investment of $100 on December 31, 2016, in our common shares, the shares comprising the S&P/TSX Composite Index, and the shares comprising the S&P 600 Materials Index The below shareholder return calculations are based on the exchange rates as reported by the H.10 statistical release of the Board of Governors of the Federal Reserve System as of the year-end exchange rate for the applicable period. The comparisons in the table are required by the SEC and applicable securities laws in Canada and are not intended to forecast or be indicative of possible future performance of our common shares. This graph and related materials shall not be deemed "soliciting material" or be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

![img243909020_0.jpg](img243909020_0.jpg)

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| **$100 Investment in stock or index** | **Ticker** | **December 31, 2016** | **December 31, 2017** | **December 31, 2018** | **December 31, 2019** | **December 31, 2020** | **December 31, 2021** | **December 31, 2022** |
| DIRTT Environmental Solutions Ltd | DRT | $100.00 | $115.30 | $95.89 | $70.21 | $52.22 | $46.09 | $10.92 |
| S&P/TSX Composite Index | SPTSX | $100.00 | $113.73 | $92.19 | $115.61 | $120.05 | $145.88 | $125.81 |
| S&P 600 Materials Index | SML | $100.00 | $108.78 | $83.65 | $99.55 | $120.04 | $140.93 | $130.92 |

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**Recent Sales of Unregistered Securities; Issuer's Purchases of Equity Securities** 

None.

**Item 6. [Reserved]**

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**Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations** 

You should read the following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2022 and 2021 together with our consolidated financial statements and related notes and other financial information appearing in this Annual Report. The discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may effect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the headings "Risk Factors" and "Special Note Cautionary Statement Regarding Forward Looking Statements" appearing elsewhere in the Annual Report.

**Summary of Financial Results**

DIRTT Environmental Solutions Ltd. and its subsidiary ("DIRTT", the "Company", "we" or "our") is a leader in industrialized construction for interior spaces. DIRTT's system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT's system provides total design freedom, and greater certainty in cost, schedule, and outcomes.

DIRTT's proprietary design integration software, ICE® ("ICE" or "ICE software"), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to unrelated companies and Construction Partners of the Company.

**Key Fourth Quarter 2022 Highlights**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The Company announced and successfully implemented a price increase of approximately 6.5% in November 2021. In addition, price increases of 5% and 10% were announced and implemented during June and July 2022, respectively. As of the fourth quarter of 2022, our revenue reflects the impact of virtually all of these price increases.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Revenues for the fourth quarter of 2022 were $42.4 million, a decrease of $0.5 million or 1% from $42.9 million for the same period in 2021, and a $4.3 million or 9% decrease from the third quarter of 2022. Our fourth quarter of 2021 benefited from the price increases announced in November of that year, which motivated various customers to accelerate order and deliveries to avoid the price increases. As such, and compared to prior year, the improvement in revenue from the pricing actions discussed above, was offset by a return to a more seasonal demand pattern and higher incidents of project push-out rates. Sequentially, this is more pronounced given the increased seasonal demand during the months within the third quarter of 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Gross profit and gross profit margin for the fourth quarter of 2022 was $11.6 million or 27.3% of revenue, an increase of $3.2 million or 38% from $8.4 million or 19.6% of revenue for the same period of 2021, and an increase of $4.6 million or 65% from $7.0 million in the third quarter of 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Adjusted Gross Profit (see "– Non-GAAP Financial Measures") for the fourth quarter of 2022 was $13.6 million. This represents a $3.4 million or 33.4% increase over the third quarter of 2022 and a $2.7 million or 25.3% increase over the fourth quarter of 2021. Adjusted Gross Profit Margin (see "– Non-GAAP Financial Measures") for the fourth quarter of 2022 was 32.0%, a 1030 bps improvement over the third quarter of 2022 and a 670 bps improvement over the fourth quarter of 2021. The improved Adjusted Gross Profit and Adjusted Gross Profit Margin were driven by commercial discipline as well as the realization of most of our price increases discussed above. Beyond the more efficient recovery of material input costs through the pricing actions taken in 2022, general inflation in services and labor costs have been offset by the favorable impact from the weakening Canadian dollar.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Net loss for the fourth quarter of 2022 was $5.9 million compared to $16.0 million for the same period of 2021. The lower net loss is primarily the result of the higher gross profit margin, explained above, of $3.2 million, a $0.2 million decrease in foreign exchange loss and a $9.7 million reduction in operating expenses offset by a $1.0 million decrease in government subsidies, a $0.2 million increase in interest expense, $0.6 million of tax expense and $1.2 million of reorganization costs. During the fourth quarter we benefited from the weakening Canadian dollar on Canadian dollar denominated costs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Adjusted EBITDA (see "– Non-GAAP Financial Measures") for the fourth quarter of 2022 was $0.6 million or 1.4% of revenue, an improvement of $10.3 million from a $9.7 million loss or (22.7)% of revenue for the fourth quarter of 2021 and an improvement of $6.0 million from a $5.4 million loss or (11.6)% of revenue for the third quarter of 2022.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•On November 30, 2022, the Company issued 8.7 million shares in a private placement to its two largest shareholders and all of its directors and executive officers for aggregate gross consideration of approximately $2.8 million (the "Private Placement"). Concurrent with the Private Placement, the Company's two largest shareholders collectively committed to purchase common shares having an aggregate subscription price of not less than $2.0 million in any rights offering conducted by the Company on or before November 30, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The Company generated approximately $3.8 million of cash in the fourth quarter compared to cash used of $21.3 million, $19.1 million and $12.5 million in the first, second and third quarters of 2022, respectively. Our improved fourth quarter of 2022 cash flow was driven by proceeds from the Private Placement discussed above, improvement in Adjusted EBITDA and improved working capital management, offset by approximately $1.2 million ($13.5 million full year) of reorganization costs.

**Key Annual 2022 Highlights**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Revenues for the year ended December 31, 2022 were $172.2 million, an increase of $24.6 million or 17% from $147.6 million for the year ended December 31, 2021 driven primarily by the pricing actions discussed above and an increase in demand, primarily from the COVID impacted periods during 2021.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Gross profit for the year ended December 31, 2022 was $28.2 million or 16.4% of revenue, an increase of $4.7 million or 20% from $23.5 million or 15.9% of revenue for the year ended December 31, 2021. Included in gross profit is inventory write-downs of $1.0 million (0.6% of total revenue), primarily related to the discontinuance of the Reflect and other product lines and accelerated amortization and depreciation of $2.1 million on discontinued product lines and the closure of the Phoenix Facility.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Adjusted Gross Profit (see "– Non-GAAP Financial Measures") for the year ended December 31, 2022 was $39.0 million, an increase of $4.9 million or 14.7% of revenue from $34.0 million or 23.1% of revenue for the year ended December 31, 2021. Adjusted Gross Profit Margin (see "– Non-GAAP Financial Measures") for the year ended December 31, 2022 was 22.6%, a 500 bps decline from 23.1% for the year ended December 31, 2021. 2022 results include certain inventory write-downs of $1.0 million (0.6% of revenue), primarily related to the discontinuance of the Reflect and other product lines. The improved Adjusted Gross Profit and Adjusted Gross Profit Margin were driven by a combination of improved demand for our products and commercial discipline. Beyond the more efficient recovery of material input costs through the pricing actions taken in 2022, general inflation in services and labor costs have been offset by the favorable impact from the weakening Canadian dollar.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Management has taken steps to align our manufacturing footprint and salaried workforce with our current activity levels as well as cost reduction and profitability initiatives. In February 2022, we announced the closure of our Phoenix Facility and elimination of manufacturing and office positions. In July 2022, we announced a further reduction of salaried positions and in August 2022, we announced the temporary closure of our Rock Hill Facility as the Calgary manufacturing facility has sufficient capacity to absorb production and meet expected demand for the near term.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Net loss for the year ended December 31, 2022 was $55.0 million compared to $53.9 million for the year ended December 31, 2021. The higher net loss is primarily the result of the above noted increase in gross profit offset by a $1.8 million increase in operating expenses which included $13.5 million of reorganization costs (added back to Adjusted EBITDA), a $2.0 million increase in interest expense, a $3.7 million decrease of government subsidies and a $0.2 million increase in income tax expense. These decreases were partially offset by an increase of $1.8 million in foreign exchange gain. The Company benefited from a weakening Canadian dollar on Canadian dollar denominated costs compared to the prior year.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Adjusted EBITDA (see "– Non-GAAP Financial Measures") for the year ended December 31, 2022 was a $26.2 million loss or (15.2)% of revenue, an improvement of $15.1 million from a $41.3 million loss or (28.0)% of revenue for the year ended December 31, 2021 for the above noted reasons.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The Company continues to evaluate certain non-dilutive, strategic initiatives expected to generate additional cash flows in the first half of 2023.

**Outlook**

Annual revenue of $172.2 million fell just below the low end of the guidance range of $175 million to $185 million set during the second quarter of 2022, primarily driven by jobsite and project delays.

During 2022, our key focus was on stabilizing the Company's balance sheet, slowing the pace of cash usage and implementing a number of initiatives designed to optimize both the cost and pricing structure. As early as the third quarter of 2022, we began seeing the improved financial effects of these changes. During the fourth quarter, this was even more magnified as Adjusted Gross Profit

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returned to greater than 30% for the first time since 2020. Improvements in operational and supply chain led to reductions in labor and inventory carrying costs during the fourth quarter. Further, we reduced costs needed to operate our back office and general and administrative overhead to levels commensurate with our current and expected revenue levels.

We take great pride in our products' ability to adjust and conform to a changing workplace. Our ability to adapt and respond to an unknown future is at the core of our value proposition. During 2022, we made adjustments, and in some cases, discontinued certain product lines that did not align with this value; our Reflect wall line principally among them.

As we shift to 2023, we expect to leverage each of the changes made during 2022, as well as being much more focused on disciplined spending and continuing to ensure our investments align with our available cash and growth expectations.

As of January 1, 2023, our 12-month forward pipeline, which represents known projects and leads at various stages of maturation which our sales teams are working to convert into orders, was $391 million, in line with October 1, 2022, and 26% higher than the $311 million balance as of January 1, 2022. The increase over prior year is driven by a combination of higher pricing and the volume impact of the higher secured projects where the required shipment dates have pushed out due to stretched construction schedules, experienced in the fourth quarter of 2022. The pipeline comprises 62% commercial, 20% healthcare, 7% education and 11% government verticals. The relative split between verticals remains consistent with pre-pandemic actual percentage results.

The January 2023 pipeline is not only higher than January 2022, but we also believe it is healthier. The percentage of projects we believe are at the stage of the project lifecycle where the project has been costed and budgeted for the next twelve months has increased. Thus, while the macro-economic conditions impacting DIRTT continue to be volatile, we believe we have a better project outlook today, than one year ago. While we are encouraged by the pipeline growth, our order pace and quarterly revenue and supply chain forecasting continues to be challenged by the high push out rates and longer than normal engineering and design time associated with large and complex projects.

Our Construction Partners have been and remain a key element in our go-to-market strategy. Enhancing both partner effectiveness and accountability will again be a priority in 2023. Our Construction Partners are a direct conduit to many of our end customers and we recommenced a Partner Advisory Council to elevate partner feedback within our organization and provide further insight to support our commercial and operational decision making.

We continue to evaluate under-performing Construction Partners and are working to provide additional support and training to them. We have also placed an emphasis on those Construction Partners that have demonstrated a commitment to growth, commercial discipline, and collaborative success. We believe this approach will serve to strengthen our pipeline and provide a strong platform in which to drive better organic growth.

We are closely monitoring our cost structure, including the underlying materials that comprise our products. Although we believe we are insulated from the near-term effects of a recession in the United States or Canada, we are susceptible to the inflationary impact of labor and commodity pricing, particularly aluminum and wood.

In response to the risk associated with these items, we have taken additional actions over the past two months that will reduce annualized overhead costs by approximately $3 million to $5 million. These cost reductions are related to efficiencies and streamlining our back office and operational support functions, not pursuant to a planned restructuring program. We are also evaluating certain purchase arrangements that will hedge against inflation and volatility associated with our primary materials.

We believe that the combination of the growth in our sales pipeline, the improved margins from pricing actions already taken and reduced cost structure set us up well to deliver year over year growth in revenue, gross margin and Adjusted EBITDA during 2023.

The Company's current and immediate focus continues to be growing revenues, increasing profitability, and managing liquidity. Moving into 2023, the following items remain the focus of our management team:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Re-focused training and development of our Construction Partner and employee base surrounding our go-to-market strategy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Continued offering of customer friendly incentives designed to improve volume and price certainty (e.g., price lock guarantee, quick pay discounts, rebate programs, etc.).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Establishing customer loyalty programs that will provide concierge level service to Construction Partners and end customers based on various volume, project, and forecast accuracy metrics.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Executing upon several supply chain optimization projects designed to improve Sales and Operational Planning and reduce slow moving and/or obsolete inventory items.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Tightly managing discretionary spend and overtime during periods of order volatility.

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As many of our end customers continue implementing 'return to work' strategies, we have seen many cases where there is a strong need to modify their workspace to accommodate a more flexible environment in the short-term, which in turn could change again over the medium- to long-term as post-pandemic requirements continue to evolve. Additionally, many organizations in different sectors are trying to enhance their physical presence in local communities by adopting a single design model that works in multiple jurisdictions. We believe we are well-positioned to capitalize on both trends.

In 2023, we expect to deliver low to mid-single digit growth in revenue and see higher gross margins, net income (loss) and Adjusted EBITDA compared to 2022. We also expect to continue to stabilize the balance sheet and grow unrestricted cash through a combination of improved financial performance and contribution from our non-dilutive cash initiatives previously discussed.

We may opportunistically take actions to improve our debt and equity structure, though we anticipate that that Company's cash flows from operations and current financing source will be sufficient for the cash needs of the Company in 2023.

**Non-GAAP Financial Measures** 

**Note Regarding Use of Non-GAAP Financial Measures** 

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These GAAP financial statements include non-cash charges and other charges and benefits that we believe are unusual or infrequent in nature or that we believe may make comparisons to our prior or future performance difficult.

As a result, we also provide financial information in this Annual Report that is not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. Management uses these non-GAAP financial measures in its review and evaluation of the financial performance of the Company. We believe that these non-GAAP financial measures also provide additional insight to investors and securities analysts as supplemental information to our GAAP results and as a basis to compare our financial performance period-over-period and to compare our financial performance with that of other companies. We believe that these non-GAAP financial measures facilitate comparisons of our core operating results from period to period and to other companies by removing the effects of our capital structure (net interest income on cash deposits, interest expense on outstanding debt and debt facilities, or foreign exchange movements), asset base (depreciation and amortization), the impact of under-utilized capacity on gross profit, tax consequences and stock-based compensation. We remove the impact of all foreign exchange from Adjusted EBITDA. Foreign exchange gains and losses can vary significantly period-to-period due to the impact of changes in the U.S. and Canadian dollar exchange rates on foreign currency denominated monetary items on the balance sheet and are not reflective of the underlying operations of the Company. We remove the impact of under-utilized capacity from gross profit, and fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are recognized as an expense in the period in which they are incurred. In addition, management bases certain forward-looking estimates and budgets on non-GAAP financial measures, primarily Adjusted EBITDA.

Government subsidies, depreciation and amortization, stock-based compensation expense, reorganization expenses, foreign exchange gains and losses and impairment expenses are excluded from our non-GAAP financial measures because management considers them to be outside of the Company's core operating results, even though some of those receipts and expenses may recur, and because management believes that each of these items can distort the trends associated with the Company's ongoing performance. We believe that excluding these receipts and expenses provides investors and management with greater visibility to the underlying performance of the business operations, enhances consistency and comparativeness with results in prior periods that do not, or future periods that may not, include such items, and facilitates comparison with the results of other companies in our industry.

The following non-GAAP financial measures are presented in this Annual Report, and a description of the calculation for each measure is included.

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| | |
|:---|:---|
| **Adjusted Gross Profit** | Gross profit before deductions for costs of under-utilized capacity, depreciation and amortization |
| **Adjusted Gross Profit Margin** | Adjusted Gross Profit divided by revenue |
| **EBITDA** | Net income before interest, taxes, depreciation and amortization |
| **Adjusted EBITDA** | EBITDA adjusted to remove foreign exchange gains or losses; impairment expenses; reorganization expenses; stock-based compensation expense; government subsidies; and any other non-core gains or losses |
| **Adjusted EBITDA Margin** | Adjusted EBITDA divided by revenue |

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You should carefully evaluate these non-GAAP financial measures, the adjustments included in them, and the reasons we consider them appropriate for analysis supplemental to our GAAP information. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider any of these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. You should also be aware that we may recognize income or incur expenses in the future that are the same as, or similar to, some of the adjustments in these non-GAAP financial measures. Because these non-GAAP financial measures may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

**Results of Operations** 

**Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021**

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **% Change** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Revenue | 172161 | 147593 | 17 |
| Gross Profit(1) | 28160 | 23460 | 20 |
| Gross Profit Margin | 16.4% | 15.9% |  |
| Operating Expenses |  |  |  |
| &nbsp;&nbsp;Sales and Marketing | 26950 | 31041 | (13) |
| &nbsp;&nbsp;General and Administrative | 25462 | 30595 | (17) |
| &nbsp;&nbsp;Operations Support | 9498 | 9372 | 1 |
| &nbsp;&nbsp;Technology and Development | 7555 | 8234 | (8) |
| &nbsp;&nbsp;Stock-Based Compensation | 4277 | 4713 | (9) |
| &nbsp;&nbsp;Reorganization | 13461 | - | 100 |
| &nbsp;&nbsp;Goodwill Impairment | - | 1443 | (100) |
| **Total Operating Expenses** | **87203** | **85398** | **2** |
| **Operating Loss** | **(59043)** | **(61938)** | **5** |
| **Operating Margin** | **(34.3)%** | **(42.0)%** |  |
| (1) Gross Profit for the year ended December 31, 2022 includes $1.0 million primarily related to the write off of inventory of discontinued product lines, and $2.1 million of accelerated depreciation and amortization on software associated with discontinued product lines and the closure of the Phoenix Facility | (1) Gross Profit for the year ended December 31, 2022 includes $1.0 million primarily related to the write off of inventory of discontinued product lines, and $2.1 million of accelerated depreciation and amortization on software associated with discontinued product lines and the closure of the Phoenix Facility | (1) Gross Profit for the year ended December 31, 2022 includes $1.0 million primarily related to the write off of inventory of discontinued product lines, and $2.1 million of accelerated depreciation and amortization on software associated with discontinued product lines and the closure of the Phoenix Facility | (1) Gross Profit for the year ended December 31, 2022 includes $1.0 million primarily related to the write off of inventory of discontinued product lines, and $2.1 million of accelerated depreciation and amortization on software associated with discontinued product lines and the closure of the Phoenix Facility |

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Revenue

The following table sets forth the contribution to revenue of our DIRTT Solutions and related offerings.

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **% Change** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Product | 147448 | 129031 | 14 |
| Transportation | 18030 | 13231 | 36 |
| License fees from Construction Partners | 778 | 738 | 5 |
| **Total product revenue** | **166256** | **143000** | **16** |
| Installation and other services | 5905 | 4593 | 29 |
|  | **172161** | **147593** | **17** |

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In response to significant increases in the costs of raw materials, shipping materials, labor, and freight, effective November 16, 2021, DIRTT increased product and transportation prices on new projects by approximately 6.5%. On February 17, 2022, we implemented a further price increase of 5% that came into effect June 1, 2022. On June 21, 2022 an additional price increase of 10% was announced effective July 21, 2022. As of the fourth quarter of 2022, product sales reflect virtually all of these price increases. The first quarter of 2022 marked the transition of the COVID-19 pandemic to an endemic with the broad easing of health restrictions, including work-from-home mandates, across North America. While the resurgence in COVID-19 infections due to the Omicron variant at the beginning of the year temporarily sent many employees back to their home offices and delayed return dates, the Company and our Construction Partners experienced an uptick in planning activity and opportunity growth in our commercial vertical which began to translate into an increase in orders beginning in March 2022.

During the year ended December 31, 2022, revenue was $172.2 million, an increase of $24.6 million or 17% from the year ended December 31, 2021. The improvement in revenue was driven by the pricing actions and increased product demand discussed

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above, offset by secured projects where the required shipment dates have pushed out due to stretched construction schedules increased. Further, 2021 revenue benefited from the price increases announced in November 2021, which motivated various customers to accelerate order and deliveries into 2021 to avoid the price increases. During the fourth quarter of 2022, we returned to a normalized seasonal demand pattern.

Installation and other services revenue was $5.9 million for the year ended December 31, 2022 compared to $4.6 million in the year ended December 31, 2021. This revenue primarily reflects services performed by our ICE and design teams for third parties. Except in limited circumstances, our Construction Partners, rather than the Company, perform installation services, and accordingly, we are not anticipating significant growth in this revenue stream.

Our success is partly dependent on our ability to profitably develop our Construction Partner network to expand our market penetration and ensure best practices are shared across local markets. At December 31, 2022, we had 67 (December 31, 2021: 69) Construction Partners servicing multiple locations. In February 2022, we announced the establishment of a Partner Advisory Council to provide a greater link with Construction Partners and end clients who they service. The Partner Advisory Council will offer advice on sales and marketing, product issues and new market needs, market conditions, competitive landscape, and other related areas of mutual interest.

We periodically analyze our revenue growth by vertical markets in the defined markets of commercial, healthcare, government and education. The following table presents our product and transportation revenue by vertical market.

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **% Change** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Commercial | 115102 | 84488 | 36 |
| Healthcare | 19739 | 30130 | (34) |
| Government | 16564 | 16012 | 3 |
| Education | 14073 | 11632 | 21 |
| License fees from Construction Partners | 778 | 738 | 5 |
| **Total product revenue** | **166256** | **143000** | **16** |
| Service revenue | 5905 | 4593 | 29 |
|  | **172161** | **147593** | **17** |

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---

| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** |
|  | **(in %)** | **(in %)** |
| Commercial | 70 | 60 |
| Healthcare | 12 | 21 |
| Government | 10 | 11 |
| Education | 8 | 8 |
| **Total Product Revenue(1)** | **100** | **100** |

---

<sup>(1)</sup> Excludes license fees from Construction Partners.

Commercial revenues increased by 36% in the year ended December 31, 2022 from the prior year, reflecting improving market conditions as health restrictions and work-from-home requirements ease and include one large customer in the technology sector with revenue of $8.8 million. Healthcare decreased by 34% in the year ended December 31, 2022 from the prior year. Such sales tend to be larger individual projects and are subject to timing due to a typically longer sales cycle, resulting in variability in sales levels. In 2021, we had one large healthcare customer with revenue of $9.6 million which did not recur in 2022.

Education sales in 2022 increased by 21% over the prior year. At the beginning of the pandemic, education spending effectively paused with many institutions suspending in-person classes. There were no individually significant education projects and the increases represent higher volumes of projects due to the easing of health restrictions and many students returning to in-person learning. Government revenues in 2022 increased by 3% over 2021.

Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The following table presents our revenue dispersion by geography:

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---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **% Change** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Canada | 25477 | 17299 | 47 |
| U.S. | 146684 | 130294 | 13 |
|  | **172161** | **147593** | **17** |

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Historically, approximately 15-25% and 75-85% of revenues are derived from sales to Canada and the United States, respectively. In 2020 and 2021, revenues from Canada fell to 11% and 12%, respectively, of total sales while sales to the United States increased to 89% and 88%, respectively, of total sales. COVID-19 infection rates and resulting regulatory responses by governments and public health officials have varied significantly by region, impacting the relative contribution of sales from each country. The geographical split for 2022 returned to historical averages and reflects the easing of health restrictions in Canada which occurred later than in the United States.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $4.1 million to $27.0 million for the year ended December 31, 2022 from $31.0 million for the year ended December 31, 2021. The decrease was largely related to a decrease of $3.8 million in salaries and benefits costs and $0.7 million decrease in depreciation expense. The decreases were offset by $0.6 million increase in travel, meals and entertainment expenses as business activity has increased with the easing of restrictions during 2022.

General and Administrative Expenses

General and administrative ("G&A") expenses decreased $5.1 million to $25.5 million for the year ended December 31, 2022 from $30.6 million for the year ended December 31, 2021. The decrease was related to a $3.3 million decrease in salaries and benefits costs associated with the planned headcount reductions as part of our cost savings initiatives, a $2.0 million decrease in professional services costs and a $0.7 million decrease in depreciation expense, offset by a $0.9 million increase in costs incurred associated with the contested election of directors to $1.8 million in 2022 from $0.9 million in 2021. The decreases were partially offset by increased office costs as employees returned to work during 2022.

Operations Support Expenses

Operations support is comprised primarily of project managers, order entry and other professionals that facilitate the integration of our Construction Partner project execution and our manufacturing operations. Operations support expenses of $9.5 million in 2022 increased marginally from $9.4 million in 2021. The increase was due to lower capitalized hours in 2022 compared to 2021 as there were limited internal design projects compared to the prior year. The increases were offset by lower travel, meals and entertainment costs compared to 2021.

Technology and Development Expenses

Technology and development expenses relate to non-capitalizable costs associated with our product and software development teams and are primarily comprised of salaries and benefits of technical staff.

Technology and development expenses decreased by $0.7 million to $7.6 million for the year ended December 31, 2022, compared to $8.2 million for the year ended December 31, 2021, primarily related to decreased salaries and benefits costs and professional fees in the current year offset by a decrease in capitalized software development costs.

Stock-Based Compensation

Stock-based compensation expense for the year ended December 31, 2022 was $4.3 million compared to $4.7 million in 2021. The movement in this expense was largely the impact of grants of RSUs to the Company's employees, including those in lieu of cash compensation to the Company's former interim Chief Executive Officer in January 2022 and DSUs granted to the Board of Directors, lowered by the impact of fair value adjustments on cash settled awards as a result of our share price decreasing during the year ended December 31, 2022. The Board of Directors receives 100% of their remuneration in DSUs.

Goodwill Impairment

We test goodwill for impairment annually during the fourth quarter of the calendar year. Due to the impact of the COVID-19 pandemic on our financial results in 2021, we determined it was necessary to use the quantitative approach to perform our goodwill impairment test. Based on our testing, the fair value of goodwill did not exceed the carrying value of its net assets and, accordingly,

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the entire $1.4 million balance of goodwill was impaired as at December 31, 2021. There was no impairment charge for the year ended December 31, 2022.

Reorganization

For the year ended December 31, 2022, we incurred $13.5 million of reorganization costs. Reorganization costs for the year include insurance costs incurred on change of control of the Board of Directors following the contested director elections, costs associated with the closure of the Phoenix Facility, costs associated with the temporary suspension of operations at the Rock Hill Facility and termination benefits associated with these changes, cost reduction initiatives explained below and management changes that occurred during the year.

We have undertaken several initiatives to align our manufacturing footprint with our current activity levels. This included the closure of the Phoenix Facility completed in the second quarter of 2022, with related manufacturing to be undertaken by both our Savannah and Calgary Facilities. Of the initial estimate of cost savings of approximately $2.4 million from this closure, we expect to realize annualized savings of approximately $1.0 million, as $1.4 million of work force reductions were offset by additions in Calgary and Savannah due to increased demand. On August 23, 2022, we announced the temporary closure of our Rock Hill Facility, as the Calgary Facility has sufficient capacity to absorb production and meet expected demand for the near term.

Additionally, in February 2022, we announced a reduction of our salaried workforce including manufacturing and office positions which, along with other cost reduction initiatives, were expected to yield annualized savings of approximately $13.0 million. The reductions were followed by a further reduction of salaried positions, as announced in July 2022, and the temporary closure of our Rock Hill Facility, announced in August 2022, which are expected to result in approximately $5.0 million in annualized savings. Of these cost reduction initiatives, $15.0 million was implemented during 2022. $3.0 million comprising of certain manufacturing positions and other cost reductions, has been deferred as we work to increase manufacturing headcount in light of increased demand.

Government Subsidies

Government subsidies for the year ended December 31, 2022 was $7.8 million compared to $11.5 million for the same period of 2021. During the third quarter of 2022, the Company determined it was eligible for the Employee Retention Credit ("ERC") in the United States. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021 for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. The Company is eligible for ERC for the first three quarters of 2021 and has filed a claim for $7.3 million in payroll tax credits ($7.1 million net of expenses). As of December 31, 2022 these credits have not been received and are included in other receivables in the balance sheet.

2021 government subsidies related to the Canadian Emergency Wage Subsidy ("CEWS") and the Canadian Emergency Rent Subsidy ("CERS"). At December 31, 2021, all amounts recorded at December 31, 2021 were collected. The last claim period under the CEWS and CERS programs ended on October 23, 2021. The Company is not eligible for and did not receive any new Canadian government subsidies in year ended December 31, 2022.

Interest expense

Interest expense increased by $2.0 million from $3.1 million for the year ended December 31, 2021 to $5.1 million for the year ended December 31, 2022. The increased interest expense is a result of the issuance of C$35.0 million ($27.4 million) of Debentures in December 2021 and draws on the Leasing Facilities.

Income Tax

The provision for income taxes comprises U.S. and Canadian federal, state and provincial taxes based on pre-tax income. Income tax expense for the year ended December 31, 2022 was $0.02 million, compared to a $0.2 million recovery for the same period of 2021. For the year ended December 31, 2022, the Company recorded valuation allowances of $13.6 million (2021 - $12.0 million) against deferred tax assets due to operating losses which impacted our ability to generate sufficient taxable income in Canada and the United States to fully deduct historical losses. As at December 31, 2022, we had C$106.7 million of loss carry-forwards in Canada and $55.7 million in the United States. These loss carry-forwards will begin to expire in 2032.

Net Loss

Net loss increased to $55.0 million or $0.63 net loss per share in the year ended December 31, 2022 from a net loss of $53.7 million or $0.63 net loss per share for the year ended December 31, 2021. The increased loss is primarily the result of a $1.8 million increase in operating expenses (which includes $13.5 million of reorganization expenses), a $2.0 million increase in interest expense, a $3.7 million decrease in government subsidies, and a $0.2 million increase in income tax expense. These decreases were offset by a $4.7 million increased gross profit and $1.8 million increase in foreign exchange gains.

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**Three Months Ended December 31, 2022 Compared to the Year Ended December 31, 2021**

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| | | | |
|:---|:---|:---|:---|
|  | **For the three months ended December 31,** | **For the three months ended December 31,** | **For the three months ended December 31,** |
|  | **2022** | **2021** | **% Change** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Revenue | 42427 | 42928 | (1) |
| Gross Profit(1) | 11589 | 8416 | 38 |
| Gross Profit Margin | 27.3% | 19.6% |  |
| Operating Expenses |  |  |  |
| &nbsp;&nbsp;Sales and Marketing | 5856 | 9271 | (37) |
| &nbsp;&nbsp;General and Administrative | 4050 | 8028 | (50) |
| &nbsp;&nbsp;Operations Support | 2151 | 2488 | (14) |
| &nbsp;&nbsp;Technology and Development | 1841 | 2229 | (17) |
| &nbsp;&nbsp;Stock-Based Compensation | 731 | 921 | (21) |
| &nbsp;&nbsp;Reorganization | 1180 | - | NA |
| &nbsp;&nbsp;Goodwill Impairment | - | 1443 | (100) |
| **Total Operating Expenses** | **15809** | **24380** | **(35)** |
| **Operating Loss** | **(4220)** | **(15964)** | **74** |
| **Operating Margin** | **(9.9)%** | **(37.2)%** |  |

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**Annual 2022 Non-GAAP Measures**

**Adjusted Gross Profit and Adjusted Gross Profit Margin for the Years Ended December 31, 2022, 2021 and 2020** 

The following table presents a reconciliation for the years ended December 31, 2022, 2021, and 2020 of Adjusted Gross Profit to our gross profit and Adjusted Gross Profit Margin to gross profit, which are the most directly comparable GAAP measures for the periods presented:

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| **Gross profit** | **28160** | **23460** | **53283** |
| **Gross profit margin** | **16.4%** | **15.9%** | **31.1%** |
| Add: Depreciation and amortization expense | 10789 | 8808 | 8110 |
| Add: Costs of under-utilized capacity | - | 1756 | 2010 |
| **Adjusted Gross Profit** | **38949** | **34024** | **63403** |
| **Adjusted Gross Profit Margin** | **22.6%** | **23.1%** | **37.0%** |

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For the year ended December 31, 2022, gross profit and gross profit margin increased to $28.2 million or 16.4% from $23.5 million or 15.9% in the prior year. Adjusted Gross Profit increased to $38.9 million and Adjusted Gross Profit Margin decreased to 22.6% for the year ended December 31, 2022, from $34.0 million or 23.1% for the year ended December 31, 2021. The 0.5% decrease in Adjusted Gross Profit Margin was a result of increased materials, transportation, packaging and other variable costs incurred prior to the effect date of the announced price increases, offset by the price actions discussed above. As a result of higher sales activities, gross profit benefited by 9.2% and 11.9% on utilization of labor and fixed costs, respectively. Labor costs increased $1.5 million for the year-to-date period as we incurred incremental costs during the second quarter associated with moving production to the Calgary and Savannah Facilities following the closure of the Phoenix Facility, rate increases, and adding capacity following an improvement in demand. Fixed costs increased $0.8 million due to cost inflation and the impact of adding the Rock Hill Facility in 2021 to the fixed cost base. In 2022 we incurred a $0.8 million charge, or 0.5% related to Reflect and other discontinued product lines. 2021 Adjusted Gross Profit benefited from the removal of $1.8 million, or 1.2% Adjusted Gross Profit impact, on under-utilized capacity not captured in product costs. 2022 gross profit was impacted by $2.1 million of incremental depreciation and amortization on the acceleration of useful lives associated with discontinued product lines and the Phoenix Facility. Gross profit for the year ended 2022 benefited by approximately $1.5 million from the impact of the weakening Canadian dollar on U.S. dollar reported results, which is included in the above variances.

During the first quarter of 2020, we determined that we were carrying abnormal excess capacity in our manufacturing facilities as a result of the slowdown in sales and determined certain production overheads should be directly expensed in cost of sales, representing production overheads that were not attributable to production. In the first quarter of 2021, we experienced the full impact

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of the slowdown in non-residential construction activity on our business. In anticipation of a recovery in demand for our products and services and to preserve our skilled workforce, we deliberately maintained manufacturing headcount, while implementing selective furlough days, in the first quarter of 2021 despite the shortfall in revenues relative to capacity. As a result, in the first quarter of 2021 we separately classified $1.8 million as costs related to our under-utilized capacity (1.2% of 2021 first quarter gross profit margin) in cost of sales. For the remaining quarters of 2021 and 2022, we did not have abnormal excess capacity as our workforce was better aligned with current production volumes.

In August 2022 we announced the temporary suspension of operations at the Rock Hill Facility. Idle facility costs incurred since suspension of operations of $0.5 million are included in cost of sales.

**EBITDA and Adjusted EBITDA for the Years Ended December 31, 2022, 2021 and 2020** 

The following table presents a reconciliation for the results of 2022, 2021 and 2020 of EBITDA and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure for the years presented:

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| **Net loss for the period** | (54963) | (53668) | (11298) |
| Add back (deduct): |  |  |  |
| Interest Expense | 5160 | 3131 | 305 |
| Interest Income | (51) | (77) | (238) |
| Tax expense (recovery) | 21 | (204) | 2104 |
| Depreciation and Amortization | 15119 | 14513 | 11706 |
| **EBITDA** | **(34714)** | **(36305)** | **2579** |
| Foreign Exchange Gains | (1445) | 335 | 576 |
| Stock-Based Compensation | 4277 | 4713 | 2351 |
| Government Subsidies | (7765) | (11455) | (12721) |
| Reorganization Expense | 13461 | - | - |
| Goodwill Impairment | - | 1443 | - |
| **Adjusted EBITDA** | **(26186)** | **(41269)** | **(7215)** |
| **Net Loss Margin(1)** | **(31.9)%** | **(36.4)%** | **(6.6)%** |
| **Adjusted EBITDA Margin** | **(15.2)%** | **(28.0)%** | **(4.2)%** |

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<sup>(1)</sup> Net loss divided by revenue.

For the year ended December 31, 2022, Adjusted EBITDA and Adjusted EBITDA Margin increased by $15.1 million to a $26.2 million loss or (15.2)% from $41.3 million loss or (28.0)% in the same period of 2021. This reflects a $4.9 million increase in Adjusted Gross Profit and $1.8 million in lower costs of underutilized capacity, discussed above, a $7.0 million decrease in salary and wage expenses reflecting the impact of headcount reductions resulting from restructuring activities during 2022, $1.2 million of decreased professional fees, as well as the impact of a weakening Canadian dollar relative to the US dollar on Canadian-based operating expenses, excluding depreciation and stock-based compensation.

**Reconciliation of Q4 2022 Non-GAAP Measures**

**Adjusted Gross Profit and Adjusted Gross Profit Margin for the Three Months Ended December 31, 2022, 2021 and 2020** 

The following table presents a reconciliation for the three months ended December 31, 2022, 2021, and 2020 of Adjusted Gross Profit to our gross profit, which is the most directly comparable GAAP measure for the periods presented:

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| | | | |
|:---|:---|:---|:---|
|  | **For the three months ended December 31,** | **For the three months ended December 31,** | **For the three months ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| **Gross profit** | **11589** | **8416** | **11540** |
| **Gross profit margin** | **27.3%** | **19.6%** | **27.4%** |
| Add: Depreciation and amortization expense | 1997 | 2425 | 1982 |
| Add: Costs of under-utilized capacity | - | - | - |
| **Adjusted Gross Profit** | **13586** | **10841** | **13522** |
| **Adjusted Gross Profit Margin** | **32.0%** | **25.3%** | **32.0%** |

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**EBITDA and Adjusted EBITDA for the Three Months Ended December 31, 2022, 2021 and 2020** 

The following table presents a reconciliation for the three months ended results of 2022, 2021 and 2020 of EBITDA and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure for the periods presented:

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| | | | |
|:---|:---|:---|:---|
|  | **For the three months ended December 31,** | **For the three months ended December 31,** | **For the three months ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| **Net loss for the period** | (5906) | (16012) | (4178) |
| Add back (deduct): |  |  |  |
| Interest Expense | 1225 | 1014 | 109 |
| Interest Income | (1) | (15) | (16) |
| Tax expense (recovery) | 37 | (551) | (86) |
| Depreciation and Amortization | 2917 | 3875 | 3033 |
| **EBITDA** | **(1728)** | **(11689)** | **(1138)** |
| Foreign Exchange Gains | 425 | 621 | 1450 |
| Stock-Based Compensation | 731 | 921 | 751 |
| Government Subsidies | - | (1021) | (3918) |
| Reorganization Expense | 1180 | - | - |
| Goodwill Impairment | - | 1443 | - |
| **Adjusted EBITDA** | **608** | **(9725)** | **(2855)** |
| **Net Loss Margin(1)** | **(13.9)%** | **(37.3)%** | **(9.9)%** |
| **Adjusted EBITDA Margin** | **1.4%** | **(22.7)%** | **(6.8)%** |

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<sup>(1)</sup> Net loss divided by revenue.

**Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020**

Discussion and analysis of our financial condition and results of operations for the fiscal year ended December 31, 2021 compared to the fiscal year ended December 31, 2020 is included under the heading Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC and applicable securities commissions or similar regulatory authorities in Canada on February 23, 2022.

**Liquidity and Capital Resources** 

Cash and cash equivalents at December 31, 2022 totaled $10.8 million, an decrease of $49.5 million from December 31, 2021. The decrease in cash over the year primarily reflects the impact of $44.3 million of cash used in operations, of which $1.8 million related to one-time costs associated with the contested director elections and $13.5 million of reorganization costs. In addition, capital expenditures totaled $4.3 million and scheduled leasing repayments totaled $2.5 million.

The impact of COVID-19 on the Company's sales and operations has been severe, including a contraction of demand since the beginning of the pandemic and more recently, significant inflation on raw material costs. This has resulted in a significant usage of cash which we have financed through existing cash on hand and external financings, as described further below. In response, we have implemented multiple initiatives during 2022 to reduce our overall fixed cost base and pricing actions to better recover the inflationary impacts to material, labor and transportation input costs, each of which has been discussed elsewhere in this Annual Report. During the second half of 2022, we began to realize the benefits of these actions. During the fourth quarter of 2022, cash and cash equivalents increased $4.0 million to $10.8 million from $6.8 million at September 30, 2022. The improved cash flow was driven by a combination of improved EBITDA from the pricing initiatives, cash flow provided from the working capital initiatives, and approximately $2.0 million of net proceeds received on the Private Placement during the quarter.

We expect the benefit of the actions discussed above to continue to be realized in 2023 and beyond. While these actions, combined with and our project pipeline are promising, we continue to see unpredictability in our pace of orders.

Accordingly, we are taking several actions to improve our balance sheet in the short term. First, we have determined our eligibility for the ERC for the first three quarters of 2021 and have filed a claim for $7.3 million in payroll tax credits ($7.1 million net of expenses). Second, we have certain properties that are currently owned that we are evaluating for sale and leasing back. We do not intend to vacate these premises as they still serve a valuable aspect of our value proposition, but we expect to receive a one-time cash payment, in exchange for future rent payments. Third, we are evaluating initiatives related to the use of ICE software by third parties to supplement the relatively small revenues we have previously recognized from our licensing of ICE software to certain strategic partners for use in their businesses and our related licensing and developer software support for these counterparties.

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To finance the Company's short-term cash requirements, the Company entered into irrevocable subscription agreements with its two largest shareholders, 22NW and 726 and all the directors and officers of the Company on November 14, 2022 to issue 8.7 million shares for gross consideration of $2.8 million. The Private Placement closed on November 30, 2022. In addition, in connection with the Private Placement, 22NW and 726, or their principals, have irrevocably committed to backstopping any rights offering occurring by the Company within twelve months of closing the Private Placement in the aggregate amount of $2.0 million.

We have assessed the Company's liquidity as at December 31, 2022 using multiple downside and upside scenarios, our sales outlook for the next twelve months in combination with existing cash balances, available credit facilities, the strategic transactions being evaluated and the Private Placement discussed previously, and potential equity or debt financing. Based upon this analysis, we believe the Company has sufficient liquidity to remain a going concern for at least the next 12 months. However, a number of factors, including our ability to satisfy the expected growth in pipeline demand and those discussed below, could adversely impact our liquidity over such period.

To the extent that existing cash and cash equivalents, available facilities and any increased liquidity from the aforementioned strategic actions are not sufficient to fund future activities, we may seek to raise additional funds through equity or debt financings. If additional funds are raised through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our Debentures and our equity securities or contain instruments that may be dilutive to our existing shareholders. Any additional equity or debt financing may be dilutive to our existing shareholders. While we believe we can access capital markets when needed or under acceptable terms, there can be no assurance we will be able to do so.

During 2021, we completed financings to increase our liquidity in light of the highly uncertain economic conditions caused by the pandemic. In January 2021, we issued C$40.3 million of the January Debentures for net proceeds after costs of C$37.6 million ($29.5 million). The January Debentures accrue interest at a rate of 6.00% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.65 per common share, or if not converted will mature and be repayable on the January Debenture Maturity Date. Interest and principal are payable in cash or shares at the option of the Company.

In February 2021, we entered into the RBC Facility, a C$25.0 million senior secured revolving credit facility with RBC. Under the RBC Facility, the "Borrowing Base" is a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. Available borrowings under the RBC Facility at December 31, 2022 were C$7.2 million ($5.3 million). On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has an borrowing base of C$15 million and a one year term.

On November 15, 2021, we issued C$35.0 million of the December Debentures for net proceeds after costs of C$32.7 million ($25.6 million). The December Debentures accrue interest at a rate of 6.25% per annum and are convertible into common shares of DIRTT at an exercise price of C$4.20 per common share, or if not converted will mature and be repayable on the December Debenture Maturity Date. Interest and principal are payable in cash or shares at the option of the Company.

The Company has a C$5.0 million Canada Leasing Facility of which C$4.4 million ($3.3 million) has been drawn, and a $14.0 million U.S. Leasing Facility of which $13.3 million has been drawn with RBC and one of its affiliates. The Leasing Facilities are available for equipment expenditures and certain equipment expenditures already incurred.

The following table summarizes our consolidated cash flows for the years indicated:

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Net cash flows (used in) provided by operating activities | (44260) | (31210) | 12485 |
| Net cash flows used in investing activities | (4024) | (14138) | (19392) |
| Net cash (used in) provided by financing activities | (874) | 62452 | 5724 |
| Effect of foreign exchange on cash, cash equivalents and restricted cash | (11) | 458 | (145) |
| **Net (decrease) increase in cash, cash equivalents and restricted cash** | **(49169)** | **17562** | **(1328)** |
| Cash, cash equivalents and restricted cash, beginning of period | 63408 | 45846 | 47174 |
| **Cash, cash equivalents and restricted cash, end of period** | **14239** | **63408** | **45846** |

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Cash and cash equivalents | 10821 | 60313 | 45846 |
| Restricted cash | 3418 | 3095 | - |
| **Total cash, cash equivalents and restricted cash** | **14239** | **63408** | **45846** |

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Operating Activities

Net cash flows used in operating activities were $44.3 million for the year ended December 31, 2022 compared to $31.2 million used by operating activities for the year ended December 31, 2021. Included in the $44.3 million used in operating activities in the year ended December 31, 2022 are $13.5 million of reorganization costs, $1.8 million of professional fees associated with the contested director elections, and $3.8 million of increased inventory arising from higher raw material prices and taking on incremental inventory from suppliers to mitigate against potential supply chain disruption, offset by the receipt of a $3.2 million income tax refund related to 2020. During the third and fourth quarter of 2022 we began to draw down our aluminum supply inventory. In the fourth quarter of 2022 we achieved positive operating cash flows through the realization of price increases, the implementation of a quick pay discount program which led to higher collections, and a focus on reduced spending. Apart from the above noted items, working capital changes primarily reflect government subsidies receivable offset by higher customer deposits.

Investing Activities

We invested $2.4 million in property, plant and equipment during the year ended December 31, 2022 compared to $11.8 million during 2021. The expenditures for 2022 comprised $1.0 million of working capital changes, $0.8 million of manufacturing upgrades, $0.3 million related to our website design and $0.3 million related to DXC refreshes and IT equipment. The decrease in investing activities is largely due to reduced spending as the Rock Hill Facility and Dallas DXC were completed in 2021.

We invested $1.7 million on capitalized software during the year ended December 31, 2022 compared to $2.3 million for the comparative period in 2021.

Actual capital expenditures of $4.3 million were below our 2022 capital budget of $7.0 million. Our 2022 capital expenditure program comprised approximately $2.5 million related to refreshes of DXCs, continued enhancement of our customer relationship management system and website redesign, approximately $2.5 million on software development and approximately $2.0 million on manufacturing and other capital upgrades of which actual expenditures have been less than budget.

Financing Activities

For the year ended December 31, 2022, $0.9 million of cash was used in financing activities, comprising mainly of $2.5 million of scheduled payments under the Leasing Facilities and $1.0 million relating to taxes paid on the vesting of RSUs for the year ended December 31, 2022 offset by the receipt of $2.0 million net proceeds from the Private Placement and a draw of C$0.9 million ($0.7 million) under the Canada Leasing Facility. For the year ended December 31, 2021, $62.5 million of cash was provided by financing activities, mainly due to the proceeds received from the issuance of C$37.6 million and C$32.7 million of Debentures in January and December of 2021, respectively, and the receipt of $9.8 million of cash consideration under the U.S. Leasing Facility.

We currently expect to fund anticipated future investments with available cash, which includes the net proceeds from the Private Placement, and drawings on the RBC Facility. We also expect to pursue additional strategic actions to improve available cash, which included filing an application for ERC for the first three quarters of 2021 for $7.1 million, net of expenses, evaluating properties we own for sale and lease back and evaluating multiple initiatives related to the use of our ICE software. Refer to "–Liquidity and Capital Resources" for further details. Apart from cash flow from operations, issuing equity and debt has been our primary source of capital to date. Additional debt or equity financing may be pursued in the future as we deem appropriate. We may also use debt or pursue equity financing depending on the price of our common shares at the time, interest rates, and nature of the investment opportunity and economic climate. No assurance can be given that any of these actions will be successful, will be sufficient for our needs.

**Consolidated cash flows for the quarter as indicated:**

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| | | | |
|:---|:---|:---|:---|
|  | **For the three months ended December 31,** | **For the three months ended December 31,** | **For the three months ended December 31,** |
|  | **2022** | **2021** | **2020** |
|  | **($ in thousands)** | **($ in thousands)** | **($ in thousands)** |
| Net cash flows (used in) provided by operating activities | 3249 | (7338) | 5090 |
| Net cash flows used in investing activities | (429) | (1582) | (9713) |
| Net cash (used in) provided by financing activities | 928 | 26369 | (258) |
| Effect of foreign exchange on cash, cash equivalents and restricted cash | 62 | (123) | 27 |
| **Net (decrease) increase in cash, cash equivalents and restricted cash** | **3810** | **17326** | **(4854)** |
| Cash, cash equivalents and restricted cash, beginning of period | 10429 | 46082 | 50700 |
| **Cash, cash equivalents and restricted cash, end of period** | **14239** | **63408** | **45846** |

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**Credit Facility** 

On February 12, 2021, the Company entered into the RBC Facility. Under the RBC Facility, the Borrowing Base is up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75%

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of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims. At December 31, 2022, available borrowings are C$7.2 million ($5.3 million), of which no amounts have been drawn. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the "Aggregate Excess Availability", defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash is less than C$5.0 million, the Company is subject to a fixed charge coverage ratio ("FCCR") covenant of 1.10:1 on a trailing twelve month basis. Additionally, if the FCCR has been below 1.10:1 for the three immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one year of payments on outstanding loans on the Leasing Facilities. The Company did not meet the three month FCCR requirement during the fourth quarter of 2022, which resulted in requiring the restriction of $3.4 million of cash. Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for five consecutive business days, the Company would enter a cash dominion period whereby the Company's bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company. On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has an borrowing base of C$15 million and a one year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to 1-years worth of Leasing Facilities payments must be maintained.

During 2020, the Company entered into the Leasing Facilities, consisting of the C$5.0 million Canada Leasing Facility and the $14.0 million U.S. Leasing Facility with RBC, which are available for equipment expenditures and certain equipment expenditures already incurred. The Leasing Facilities, respectively, have seven and five-year terms and bear interest at 4.25% and 5.59%. The U.S. Leasing Facility is amortized over a six-year term and is extendible at the Company's option for an additional year.

The Company has drawn $13.3 million of cash consideration under the U.S. Leasing Facility and commenced the lease term in 2020 for the equipment at the Rock Hill Facility. The Company has drawn C$4.4 million ($3.3 million) of cash consideration under the Canada Leasing Facility and commenced the lease term for the Canadian equipment expenditures during 2020. C$0.9 million ($0.7 million) of the Canada Leasing Facility was drawn during the year ended December 31, 2022.

We are restricted from paying dividends unless Payment Conditions (as defined in the RBC Facility) are met, including having a net borrowing availability of at least C$10 million over the proceeding 30-day period, and having a trailing twelve month fixed charge coverage ratio above 1.10:1 and certain other conditions. The RBC Facility is currently secured by substantially all of our real property located in Canada and the United States

**Contractual Obligations** 

The following table summarizes DIRTT's contractual obligations at December 31, 2022:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Payments due by period** | **Payments due by period** | **Payments due by period** | **Payments due by period** | **Payments due by period** |
|  | **Less than** |  |  | **Greater than** |  |
|  | **1 year** | **1 to 3 years** | **3 to 5 years** | **5 years** | **Total** |
|  | ($ in thousands) | ($ in thousands) | ($ in thousands) | ($ in thousands) | ($ in thousands) |
| Accounts payable and accrued liabilities | 19881 | - | - | - | 19881 |
| Other liabilities | 2056 | - | - | - | 2056 |
| Customer deposits and deferred revenue | 4866 | - | - | - | 4866 |
| Current and long-term portion of long-term debt and accrued interest1 | 6567 | 13594 | 61507 | 131 | 81799 |
| Lease liabilities (undiscounted) | 5889 | 8381 | 5615 | 13538 | 33423 |
| Purchase obligations | 2150 | - | - | - | 2150 |
| **Total** | **41409** | **21975** | **67122** | **13669** | **144175** |

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<sup>(1)</sup> Includes principal and interest. See Note 14 to our Consolidated Financial Statements for additional information.

**Critical Accounting Policies and Estimates** 

Our significant accounting policies are described in Note 2 to our Consolidated Financial Statements appearing elsewhere in this Annual Report. Our critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective or complex judgments in making estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. We prepare our financial statements in conformity with GAAP. As a result, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Critical estimates and assumptions made by management include:

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**Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies** 

We have warranty obligations with respect to manufacturing defects on most of our manufactured products. Warranty periods generally range from one to ten years. We have recorded a reserve for estimated warranty and related costs based on historical experience and periodically adjust these provisions to reflect actual experience. We assess the adequacy of our warranty accrual on a quarterly basis, and adjust the previous amounts recorded, if necessary, to reflect the change in estimate of the future costs of claims yet to be serviced. Typically, product deficiencies requiring our warranty are identified and remediated within a year of production. The following provides information with respect to our warranty accrual. At December 31, 2022 and 2021, we had $1.3 million and $1.5 million, respectively, accrued for warranty and other provisions, and third-party costs associated with remedying deficiencies were $1.1 million during the fiscal year ended December 31, 2022, as compared to $0.8 million during the fiscal year ended December 31, 2021.

We establish reserves for estimated legal contingencies when we believe a loss on litigation is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liability reserves are reflected in operations in the period in which there are changes in facts and circumstances that affect our previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon our assumptions and estimates regarding the probable outcome of the matter. We estimate the probable cost by evaluating historical precedent as well as the specific facts relating to each contingency (including the opinion of outside advisors). Should the outcome differ from our assumptions and estimates, or other events result in a material adjustment to the accrued estimated reserves, revisions to the estimated reserves for contingent liabilities would be required and would be recognized in the period the new information becomes known. At December 31, 2022 and 2021, we had $0.05 million and $0.1 million provided for legal provisions, respectively.

**Estimates of useful lives of depreciable assets and the fair value of long-term assets used for impairment calculations** 

We evaluate the recoverability of our property, plant, and equipment ("PP&E"), capitalized software costs and right of use assets when events or changes in circumstances indicate a potential impairment exists. If impairment is indicated, the impairment loss is measured as the amount the assets carrying value exceeds the fair value of the assets.

Our determination of the fair value associated with long-term assets involves significant estimates and assumptions, including those with respect to the determination of asset groups, future cash inflows and outflows, discount rates, and asset lives. In the current year, estimates of cash inflows are dependent on the timing and extent of recovery of the slowdown experienced as a result of the COVID-19 pandemic. These significant estimates require considerable judgment, which could affect our future results if the current estimates of future performance and fair values change.

We estimate the useful lives of PP&E, capitalized software costs and right of use assets based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed annually and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of the relevant assets may be based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the PP&E and capitalized software assets would increase the recorded expenses and decrease the non-current assets.

We test goodwill for impairment annually during the fourth quarter of the calendar year. Due to the ongoing impact of the COVID-19 pandemic on our financial results in 2021, we determined it was necessary to use the quantitative approach to perform our goodwill impairment test. Based on our testing, the fair value of goodwill did not exceed the carrying value of its net assets and, accordingly, the entire $1.4 million balance of goodwill was impaired as at December 31, 2021. There was no impairment charge for the year ended December 31, 2022.

**Estimates of future taxable earnings used to assess the realizable value of deferred tax assets** 

We use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts reported in the financial statements. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried forward to reduce income taxes in future years. Such method requires the exercise of significant judgment in determining whether or not our deferred tax assets are probable of recovery from taxable income of future years and, therefore, can be recognized in the financial statements. Also, estimates are required to determine the expected timing upon which tax assets will be realized and upon which tax liabilities will be settled. We assess the ability to recover our deferred tax assets every quarter and concluded that a valuation allowance was required against our deferred tax assets at December 31, 2022 of $29.8 million (2021 - $17.3 million).

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**Tax interpretations, regulations, and legislation in the various jurisdictions in which the Company and its subsidiaries operate** 

The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, and Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

We have no liability for uncertain tax positions. However, should we accrue for such liabilities, when and if they arise in the future, we will recognize interest and penalties associated with uncertain tax positions as part of our income tax provision.

**Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount** 

We use a fair-value based approach for measuring stock-based compensation and record compensation expense over an award's vesting period based on the award's fair value at the date of grant. Our awards vest based on service conditions, and compensation expense is recognized on a straight-line basis. Stock-based compensation expense is recognized only for those awards that ultimately vest.

**Estimates of ability and timeliness of customer payments of accounts receivable** 

Our expected credit loss reflects reserves for customer receivables to reduce receivables to amounts expected to be collected. Management uses significant judgment in estimating expected credit losses. In estimating the Company's current estimate of expected credit losses, management considers historical credit loss experience as well as forward- looking information in order to establish rates for each class of financial receivable with similar risk characteristics. While we believe these processes effectively address our exposure for doubtful accounts and credit losses have historically been within expectations, changes in the economy, industry, or specific customer conditions may require adjustments to the expected credit loss. We have a contract with a trade credit insurance provider, whereby a portion of our trade receivables are insured. The trade credit insurance provider determines the coverage amount, if any, on a customer-by-customer basis. Based on our trade receivables balance as at December 31, 2022 and 2021, approximately 77% and 90%, respectively, of that balance was covered by trade credit insurance provider.

At December 31, 2022, we had an allowance for expected credit loss of $0.1 million (2021 - $0.1 million).

**Recent Accounting Pronouncements** 

Please refer to Note 3 to our Consolidated Financial Statements presented elsewhere in this Annual Report.

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**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.** 

Our financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, trade and accrued receivables, other receivables, long-term deposits and long-term receivables, accounts payable and accrued liabilities, other liabilities, lease liabilities and long-term debt and accrued interest. We are exposed to market, credit and liquidity risks associated with financial assets and liabilities. We currently do not use financial derivatives to reduce exposures from changes in foreign exchange rates, commodity prices, or interest rates. We do not hold or use any derivative instruments for trading or speculative purposes. Our Board has responsibility for the establishment and approval of overall risk management policies, including those related to financial instruments. Management performs continuous assessments to ensure that all significant risks related to financial instruments are reviewed and addressed in light of changes to market conditions and operating activities.

**Credit risk** 

Our principal financial assets are cash and cash equivalents, restricted cash, trade and accrued receivables and other receivables.

Our credit risk is primarily concentrated in our trade and accrued receivables as we do not believe that we are exposed to any significant credit risk related to our cash and cash equivalents, other receivables (owing from government) and restricted cash balances. The amounts disclosed in the consolidated balance sheet for trade and accrued receivables and other receivables are net of allowances for doubtful accounts. Allowances are provided for the Company's current estimate of all expected credit losses using the lifetime expected credit loss model. In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2022, approximately 77% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities, that have arisen since April 1, 2020, when the trade credit insurance became effective. Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. No Construction Partner accounts for greater than 10% of revenue. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients. In November 2022 we also introduced a quick pay discount program.

The overall change and uncertainty in the economy as a result of the COVID-19 pandemic had caused us to increase our expectation of credit losses during the first quarter of 2020, and additionally, we believe the COVID-19 pandemic has affected the ability of certain Construction Partners and other customers to pay amounts owed or owing to DIRTT due to the impact of local shutdowns on businesses in certain markets. During the year ended December 31, 2021, we decreased our provision for expected credit losses by $0.5 million to $0.1 million which was related to an uncollectable amount written off during 2021. During 2022 no revisions to our credit loss estimate was required.

**Market risk** 

Market risk is the risk that changes in market prices, such as interest rates and foreign currency exchange rates, will affect our income or the value of the financial instruments held.

**Foreign exchange risk** 

Historically, the majority (approximately 80% to 88%) of our revenue is collected in U.S. dollars, and approximately 40% of our costs are also incurred in U.S. dollars. Most other revenue and costs are denominated in Canadian dollars. As a result, we are exposed to fluctuations in the U.S. dollar against the Canadian dollar, which could have a positive or negative impact on our revenue and costs. The recent strengthening of the U.S. dollar versus the Canadian dollar in the later half of 2022 has had a positive impact on results because reported cost reductions are higher than reported revenue reductions.

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Our financial instruments are exposed primarily to fluctuations in the Canadian dollar. The following table details our exposure to currency risk at the reporting dates and a sensitivity analysis to changes in currency. The sensitivity analysis includes Canadian dollar-denominated monetary items and adjusts their translation at period end for their respective change in the Canadian dollar. For the respective weakening of the Canadian dollar, there would be an equal and opposite impact on net loss and comprehensive loss.

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| | | | |
|:---|:---|:---|:---|
|  |  |  | **Effect of net** |
|  |  |  | **loss and** |
|  |  |  | **comprehensive** |
|  |  |  | **loss for the** |
|  | **Amount** | **Change in** | **year ended** |
|  | **(C$ in thousands)** | **Currency (%)** | **December 31, 2022** |
| Cash and cash equivalents | 2868 | 10% | 287 |
| Restricted cash | 1149 | 10% | 115 |
| Trade and accrued receivables | 3937 | 10% | 394 |
| Other receivables | 381 | 10% | 38 |
| Other assets | 332 | 10% | 33 |
| Accounts payable and accrued liabilities | 13349 | 10% | 1335 |
| Other liabilities | 1896 | 10% | 190 |
| Customer deposits | 324 | 10% | 32 |
| Current portion of long-term debt and accrued interest | 445 | 10% | 45 |
| Long-term debt | 71619 | 10% | 7162 |
| **Total** | **96300** | **10%** | **9631** |

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**Commodity price risk** 

We consume raw materials such as aluminum, hardware, wood and veneer, timber, plastic, electrical wiring and components, paint and powder, and fabric and vinyl. While aluminum represents the largest component of our raw materials' expenditures, overall aluminum spend comprises only approximately 14% of product revenues and, therefore, absolute exposure to price fluctuations has a minimal impact on profitability.

**Interest rate risk** 

In February 2021, we entered into the RBC Facility. The RBC Facility had no amounts outstanding at December 31, 2020. An increase in overall interest rates by 0.5% would have increased interest expense related to these items and decreased net loss and comprehensive loss by $nil for 2022 and 2021. An equal decrease in rates would generate an equal amount of interest savings. On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has an borrowing base of C$15 million and a one year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points.

The Company's Leasing Facilities and Debentures bear interest at fixed interest rates and are therefore not subject to interest rate risk.

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**Item 8. Financial Statements and Supplementary Data.**

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| | |
|:---|:---|
| **INDEX** | &nbsp;&nbsp;&nbsp;**Page No.** |
| [<u>Report of Independent Registered Public Accounting Firm (PCAOB ID</u> 271<u>)</u>](#report_of_independent_registered_public) | &nbsp;&nbsp;47 |
| [<u>Consolidated Balance Sheets, as at December 31, 2022 and 2021</u>](#consolidated_balance_sheets) | &nbsp;&nbsp;48 |
| [<u>Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_operations_compr) | &nbsp;&nbsp;49 |
| [<u>Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_changes_in_share) | &nbsp;&nbsp;51 |
| [<u>Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020</u>](#consolidated_statements_cash_flows) | &nbsp;&nbsp;52 |
| [<u>Notes to the Consolidated Financial Statements</u>](#notes_to_consolidated_financial_statemen) | &nbsp;&nbsp;53 |

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![img243909020_1.jpg](img243909020_1.jpg)

**Report of Independent Registered Public Accounting Firm** 

To the Shareholders and Board of Directors of DIRTT Environmental Solutions Ltd.

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of DIRTT Environmental Solutions Ltd. and its subsidiaries (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, of changes in shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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.

We conducted our audits of these consolidated financial statements 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our 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.

&nbsp;&nbsp;&nbsp;&nbsp;/s/ PricewaterhouseCoopers LLP

Chartered Professional AccountantsCalgary, CanadaFebruary 22, 2023

We have served as the Company's auditor since 2017.

PricewaterhouseCoopers LLP

111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3

T: +1 403 509 7500, F: +1 403 781 1825

"PwC" refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

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**DIRTT Environmental Solutions Ltd.** 

**Consolidated Balance Sheets** 

(Stated in thousands of U.S. dollars)

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| | | |
|:---|:---|:---|
|  | **As at<br>December 31,** | **As at <br>December 31,** |
|  | **2022** | **2021** |
| **ASSETS** |  |  |
| **Current Assets** |  |  |
| Cash and cash equivalents | 10821 | 60313 |
| Restricted cash | 3418 | 3095 |
| Trade and accrued receivables, net of expected credit losses of <br> $0.1 million at December 31, 2022 and at December 31, 2021 | 13930 | 14063 |
| Other receivables | 7880 | 3477 |
| Inventory | 22251 | 18457 |
| Prepaids and other current assets | 3825 | 4399 |
| **Total Current Assets** | 62125 | 103804 |
| Property, plant and equipment, net | 41522 | 51697 |
| Capitalized software, net | 4406 | 7395 |
| Operating lease right-of-use assets, net | 30490 | 30880 |
| Other assets | 5110 | 5663 |
| **Total Assets** | 143653 | 199439 |
| **LIABILITIES** |  |  |
| **Current Liabilities** |  |  |
| Accounts payable and accrued liabilities | 19881 | 22751 |
| Other liabilities | 2056 | 2379 |
| Customer deposits and deferred revenue | 4866 | 2420 |
| Current portion of long-term debt and accrued interest | 3306 | 3323 |
| Current portion of lease liabilities | 5889 | 6214 |
| **Total Current Liabilities** | 35998 | 37087 |
| Long-term debt | 62129 | 67319 |
| Long-term lease liabilities | 27534 | 27267 |
| **Total Liabilities** | 125661 | 131673 |
| **SHAREHOLDERS' EQUITY** |  |  |
| Common shares, unlimited authorized without par value, 97,882,844 issued <br> and outstanding at December 31, 2022 and 85,345,433 at December 31, 2021 | 191347 | 181782 |
| Additional paid-in capital | 9023 | 13200 |
| Accumulated other comprehensive loss | (16106) | (15916) |
| Accumulated deficit | (166272) | (111300) |
| **Total Shareholders' Equity** | 17992 | 67766 |
| **Total Liabilities and Shareholders' Equity** | 143653 | 199439 |

---

Refer to Note 19 for commitments. The prior year comparatives have been revised in line with current year presentation - refer to Note 8.

**The accompanying notes are an integral part of these consolidated financial statements.** 

------

**DIRTT Environmental Solutions Ltd.** 

**Consolidated Statements of Operations and Comprehensive Loss** 

(Stated in thousands of U.S. dollars, except per share data)

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Product revenue | 166256 | 143000 | 166689 |
| Service revenue | 5905 | 4593 | 4818 |
| **Total revenue** | 172161 | 147593 | 171507 |
| Product cost of sales | 140058 | 120281 | 115455 |
| Service cost of sales | 3943 | 3852 | 2769 |
| **Total cost of sales** | 144001 | 124133 | 118224 |
| **Gross profit** | 28160 | 23460 | 53283 |
| **Expenses** |  |  |  |
| Sales and marketing | 26950 | 31041 | 28049 |
| General and administrative | 25462 | 30595 | 26663 |
| Operations support | 9498 | 9372 | 9381 |
| Technology and development | 7555 | 8234 | 8111 |
| Stock-based compensation | 4277 | 4713 | 2351 |
| Reorganization | 13461 | - | - |
| Goodwill impairment | - | 1443 | - |
| **Total operating expenses** | 87203 | 85398 | 74555 |
| **Operating loss** | **(**59043**)** | **(**61938**)** | **(**21272**)** |
| Government subsidies | 7765 | 11455 | 12721 |
| Foreign exchange gain (loss) | 1445 | (335) | (576) |
| Interest income | 51 | 77 | 238 |
| Interest expense | (5160) | (3131) | (305) |
|  | 4101 | 8066 | 12078 |
| **Loss before tax** | **(**54942**)** | **(**53872**)** | **(**9194**)** |
| **Income taxes** |  |  |  |
| Current tax expense (recovery) | 21 | 210 | (3521) |
| Deferred tax (recovery) expense | - | (414) | 5625 |
|  | 21 | **(**204**)** | 2104 |
| **Net loss** | **(**54963**)** | **(**53668**)** | **(**11298**)** |
| **Loss per share** |  |  |  |
| Basic and diluted loss per share | (0.63) | (0.63) | (0.13) |
| **Weighted average number of shares outstanding** (in thousands) |  |  |  |
| Basic and Diluted | 87662 | 85027 | 84681 |

---

2022 reorganization costs include $0.2 million paid to related parties (2021 and 2020 - $nil)

The prior year comparatives have been revised in line with current year presentation - refer to Note 9.

------

**Consolidated Statement of Comprehensive Loss** 

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Loss for the year | (54963) | (53668) | (11298) |
| Exchange differences on translation of foreign operations | (190) | 1102 | 1010 |
| **Comprehensive loss for the year** | **(**55153**)** | **(**52566**)** | **(**10288**)** |

---

**The accompanying notes are an integral part of these consolidated financial statements.** 

------

**DIRTT Environmental Solutions Ltd.** 

**Consolidated Statements of Changes in Shareholders' Equity** 

(Stated in thousands of U.S. dollars, except for share data)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  | **Accumulated** |  |  |
|  | **Number of** |  | **Additional** | **other** |  | **Total** |
|  | **Common** | **Common** | **paid-in** | **comprehensive** | **Accumulated** | **shareholders'** |
|  | **shares** | **shares** | **capital** | **loss** | **deficit** | **equity** |
| **As at December 31, 2019** | 84681364 | 180639 | 8343 | **(**18028**)** | **(**45967**)** | 124987 |
| Stock-based compensation | - | - | 1832 | - | - | 1832 |
| Foreign currency translation adjustment | - | - | - | 1010 | - | 1010 |
| Net loss for the year | - | - | - | - | (11298) | (11298) |
| **As at December 31, 2020** | 84681364 | 180639 | 10175 | **(**17018**)** | **(**57265**)** | 116531 |
| Stock-based compensation | - | - | 4453 | - | - | 4453 |
| Issued on vesting of RSUs | 664069 | 1143 | (1143) | - | - | - |
| RSUs and Share Awards withheld to settle employee tax obligations | - | - | (285) | - | (367) | (652) |
| Foreign currency translation adjustment | - | - | - | 1102 | - | 1102 |
| Net loss for the year | - | - | - | - | (53668) | (53668) |
| **As at December 31, 2021** | 85345433 | 181782 | 13200 | **(**15916**)** | **(**111300**)** | 67766 |
| Stock-based compensation | - | - | 3943 | - | - | 3943 |
| Issued on vesting of RSUs and Share Awards | 3149061 | 7088 | (7088) | - | - | - |
| RSUs and Share Awards withheld to settle employee tax obligations | - | - | (1032) | - | (9) | (1041) |
| Issued for employee share purchase plan | 720901 | 296 | - | - | - | 296 |
| Issued on private placement | 8667449 | 2181 | - | - | - | 2181 |
| Foreign currency translation adjustment | - | - | - | (190) | - | (190) |
| Net loss for the year | - | - | - | - | (54963) | (54963) |
| **As at December 31, 2022** | 97882844 | 191347 | 9023 | **(**16106**)** | **(**166272**)** | 17992 |

---

**The accompanying notes are an integral part of these consolidated financial statements.** 

------

**DIRTT Environmental Solutions Ltd.** 

**Consolidated Statements of Cash Flows** 

(Stated in thousands of U.S. dollars)

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| **Cash flows from operating activities:** |  |  |  |
| Net loss for the period | (54963) | (53668) | (11298) |
| **Adjustments:** |  |  |  |
| Depreciation and amortization | 15119 | 14513 | 11706 |
| Stock-based compensation, net of settlements | 3342 | 4248 | 2351 |
| Foreign exchange loss (gain) | (1813) | 112 | 746 |
| Accretion of convertible debentures | 676 | 352 | - |
| Loss (gain) on disposal of equipment | (133) | 12 | (46) |
| Deferred income tax expense (recovery) | - | (414) | 5625 |
| Goodwill impairment | - | 1443 | - |
| Changes in operating assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Trade and accrued receivables | (179) | (2118) | 11327 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other receivables | (4432) | 3570 | (5260) |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventory | (4716) | (2449) | 1638 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid and other assets, current and long term | 129 | (1132) | (241) |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities | 260 | 2702 | 752 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other liabilities | (109) | (213) | (3971) |
| &nbsp;&nbsp;&nbsp;&nbsp;Customer deposits and deferred revenue | 2477 | 601 | (1754) |
| &nbsp;&nbsp;&nbsp;&nbsp;Current portion of long-term debt and accrued interest | (149) | 948 | - |
| &nbsp;&nbsp;&nbsp;&nbsp;Lease liabilities | 231 | 283 | 910 |
| **Net cash flows (used in) provided by operating activities** | **(**44260**)** | **(**31210**)** | 12485 |
| **Cash flows from investing activities:** |  |  |  |
| Purchase of property, plant and equipment, net of accounts <br>&nbsp;&nbsp;&nbsp;&nbsp;payable changes | (2394) | (11781) | (16597) |
| Capitalized software development expenditures | (1677) | (2340) | (2998) |
| Other asset expenditures | (443) | (496) | (517) |
| Proceeds on sales of equipment | 227 | 18 | 46 |
| Recovery of software development expenditures | 263 | 461 | 674 |
| **Net cash flows used in investing activities** | **(**4024**)** | **(**14138**)** | **(**19392**)** |
| **Cash flows from financing activities:** |  |  |  |
| Proceeds received on long-term debt | 647 | 64912 | 6130 |
| Repayment of long-term debt | (2470) | (1808) | (406) |
| Proceeds received on private placement | 1990 | - | - |
| Employee tax payments on vesting of RSUs | (1041) | (652) | - |
| **Net cash flows provided by financing activities** | **(**874**)** | 62452 | 5724 |
| Effect of foreign exchange on cash, cash equivalents and <br>&nbsp;&nbsp;&nbsp;&nbsp;restricted cash | (11) | 458 | (145) |
| **Net (decrease) increase in cash, cash equivalents and <br>&nbsp;&nbsp;&nbsp;&nbsp;restricted cash** | **(**49169**)** | 17562 | **(**1328**)** |
| Cash, cash equivalents and restricted cash, beginning of year | 63408 | 45846 | 47174 |
| **Cash, cash equivalents and restricted cash, end of year** | 14239 | 63408 | 45846 |
| **Supplemental disclosure of cash flow information:** |  |  |  |
| Interest paid | (4423) | (1543) | (103) |
| Income taxes received | 3212 | 433 | 1817 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets. | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets. | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets. | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets. |
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Cash and cash equivalents | 10821 | 60313 | 45846 |
| Restricted cash | 3418 | 3095 | - |
| **Total cash, cash equivalents and restricted cash** | 14239 | 63408 | 45846 |

---

**The accompanying notes are an integral part of these consolidated financial statements.** 

------

**DIRTT Environmental Solutions Ltd.** 

**Notes to the Consolidated Financial Statements** 

**(Amounts stated in thousands of U.S. dollars unless otherwise stated)** 

**1. GENERAL INFORMATION** 

DIRTT Environmental Solutions Ltd. and its subsidiary ("DIRTT", the "Company", "we" or "our") is a leader in industrialized construction. DIRTT's system of physical products and digital tools empowers organizations, together with construction and design leaders, to build high-performing, adaptable, interior environments. Operating in the workplace, healthcare, education, and public sector markets, DIRTT's system provides total design freedom, and greater certainty in cost, schedule, and outcomes.

DIRTT's proprietary design integration software, ICE® ("ICE" or "ICE software"), translates the vision of architects and designers into a 3D model that also acts as manufacturing information. ICE is also licensed to unrelated companies and Construction Partners of the Company.

DIRTT is incorporated under the laws of the province of Alberta, Canada, its headquarters is located at 7303 – 30th Street S.E., Calgary, AB, Canada T2C 1N6 and its registered office is located at 4500, 855 – 2nd Street S.W., Calgary, AB, Canada T2P 4K7. DIRTT's common shares trade on the Toronto Stock Exchange under the symbol "DRT" and on The Nasdaq Global Select Market ("Nasdaq") under the symbol "DRTT".

**2. SIGNIFICANT ACCOUNTING POLICIES** 

**Basis of presentation** 

These consolidated financial statements ("Financial Statements"), including comparative figures, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

In these Financial Statements, unless otherwise indicated, all dollar amounts are expressed in United States ("U.S.") dollars. DIRTT's financial results are consolidated in Canadian dollars, the Company's functional currency, and the Company has adopted the U.S. dollar as its reporting currency. All references to US$ or $ are to U.S. dollars and references to C$ are to Canadian dollars.

**Principles of consolidation** 

The Financial Statements include the accounts of DIRTT and its subsidiaries. All intercompany balances, income and expenses, unrealized gains and losses and dividends resulting from intercompany transactions have been eliminated upon consolidation.

**Basis of measurement** 

These Financial Statements have been prepared on the historical cost convention except for certain financial instruments and stock-based compensation that are measured at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

**Use of estimates** 

The preparation of the Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the Financial Statements. Estimates are based on historical data and experience, as well as various other factors that management considers reasonable under the circumstances. Actual outcomes can differ from these estimates.

Significant estimates and assumptions made by management include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Estimates of ability and timeliness of customer payments of trade receivables;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Estimates of useful lives of depreciable assets as well as the fair value of long-term assets and future cash flows used for impairment calculations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Estimates of future taxable earnings used to assess the realizable value of deferred tax assets;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Estimates of the fair value of stock awards, including whether the performance criteria will be met and measurement of the ultimate payout amount; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Estimates of liabilities associated with the potential and amount of warranty, legal claims and other contingencies.

**Segments** 

Management has determined that DIRTT has one operating segment. The Company's chief executive officer, who is DIRTT's chief operating decision maker, reviews financial information on a consolidated and aggregate basis, together with certain operating metrics principally to make decisions about how to allocate resources and to measure the Company's performance.

**Foreign currency translation** 

DIRTT Environmental Solutions Ltd. is a Canadian company and its functional currency is the Canadian dollar. DIRTT's wholly owned subsidiary is domiciled in the United States and its functional currency is the U.S. dollar.

Assets and liabilities denominated in foreign currencies, other than those held through foreign subsidiaries, are translated into the transacting company's functional currency at the year-end exchange rate for monetary items and at the historical exchange rates for non-monetary items. Foreign currency revenues and expenses are translated at the exchange rates in effect on the dates of the related transactions. Foreign exchange gains and losses, other than those arising from the translation of the Company's net investments in foreign subsidiaries, are included in income.

The accounts of the Company's U.S. dollar subsidiary is translated into Canadian dollars, and the Financial Statements are translated into U.S. dollars for financial statement presentation. Assets and liabilities are translated using year-end exchange rates, and revenues, expenses, gains and losses are translated using average monthly exchange rates. Foreign exchange gains and losses arising from the translation of the Company's assets and liabilities are included in "comprehensive loss for the year".

**Cash and cash equivalents and restricted cash**

Cash and cash equivalents include cash on hand held at banks and cash equivalents, which are defined as highly liquid investments with original maturities of three months or less. Restricted cash is a reserve account not available for immediate or general business use and is required when certain requirements are not met under the terms of the Company's senior secured credit facility (as defined in Note 14).

**Trade and other receivables, net of expected credit losses** 

Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates its allowance for doubtful accounts using the current expected credit loss ("CECL") methodology, which is designed to capture the Company's current estimate of all expected credit losses.

**Inventory** 

Inventory is comprised of raw materials and work in progress. The Company does not typically carry a significant amount of finished goods inventory. Inventory is valued at the lower of weighted average cost and net realizable value. Net realizable value is based on an item's usability in the manufacturing of the Company's products. The Company records an allowance for obsolescence when the net realizable value of inventory items declines below weighted average cost, net realizable value is determined based on current market prices for inventory less the estimated cost to sell. Work in progress is valued at an estimate of cost, including attributable overheads, based on stage of completion.

Fixed production overheads are allocated to inventory on the basis of normal capacity of the production facilities. In periods where production levels are abnormally low, unallocated overheads are separately recognized as an expense in the period in which they are incurred.

**Leases** 

The Company categorizes leases at their inception as either operating or finance leases. Leases where the Company assumes substantially all of the rewards or ownership and leases where ownership is transferred at the end of the lease term, or by way of a

------

bargain purchase option, are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the statement of operations.

The Company's Leasing Facilities (as defined in Note 7) are accounted for as finance leases as ownership of the equipment is expected to return to the Company at the end of the lease term. These transactions are not accounted for as a sale of the underlying equipment as the Company continues to control the equipment.

For leases categorized as operating, the Company determines if an arrangement is a lease or contains a lease element at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Operating leases are separately disclosed as operating lease right-of-use ("ROU") assets, with a corresponding lease liability split between current and long-term components on the balance sheet. Operating leases with an initial term of 12 months or less are not included on the balance sheet.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term. ROU assets represent the right to use an underlying asset for the lease term and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

**Property, plant and equipment** 

Property, plant and equipment are recorded at cost, including direct costs, attributable indirect costs and carrying costs, less accumulated depreciation and any accumulated impairment losses. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments are capitalized.

Depreciation is charged to the consolidated statement of operations on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives of the Company's property, plant and equipment are as follows:

---

| | |
|:---|:---|
| Building | 25 years |
| Manufacturing equipment | 10 years |
| Leasehold improvements | Over term of lease (1 to 10 years) |
| Office equipment | 5 years |
| Tooling and prototypes | 4 years |
| Computer equipment | 3 years |
| Vehicles | 3 years |

---

When assets are disposed of or retired, the cost and accumulated depreciation and impairment losses are removed from the respective accounts and any resulting loss is reflected in operating expenses.

**Capitalized software costs** 

The Company capitalizes costs related to internally developed software during the application development stage when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project, and (iii) it is probable that the project will be completed and performed as intended. Capitalized costs includes costs of personnel and related expenses for employees and third parties directly attributable to the projects. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements are also capitalized. Costs related to preliminary project activities and post implementation activities, including training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software costs are amortized on a straight-line basis over the estimated useful life of the developed asset, which is generally three to five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets.

Software development is considered internal-use as it is used to design and sell the DIRTT products and is not included in the end client's product. Revenues received from Construction Partners for ICE Software are recognized as revenues as they are considered an element of the product sale. Any incidental third-party revenues received for the ICE Software are credited against capitalized software costs. The Company follows this accounting policy for cloud computing arrangements that are considered a service contract, however, these projects are capitalized to prepaids and other assets on the balance sheet and are expensed as an

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operating cost, as opposed to amortization, over the expected term of the software service contract. The Company adopted this amendment on January 1, 2020 using the prospective transition approach and classified $0.7 million as other assets on the consolidated balance sheet for the year ended December 31, 2021.

**Impairment of long-lived assets** 

Management evaluates the recoverability of the Company's property, plant and equipment, capitalized software costs and ROU assets when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company's business strategy. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an "asset group"). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group. If impairment is indicated based on a comparison of the assets' carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

**Convertible Debentures** 

The Company accounts for convertible debentures as liabilities. Embedded features included in the convertible debentures that require bifurcation are accounted for separately. Costs incurred directly related to the issuance of convertible debentures are presented as a direct deduction against the carrying amount of the convertible debentures and are amortized to interest expense using the effective interest method.

**Income taxes** 

Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of operations and comprehensive income (loss) except to the extent it relates to items recognized directly in equity.

Current tax

Current tax expense is based on the results for the year, adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax

Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period during which the change occurs.

When appropriate, the Company records a valuation allowance against deferred tax assets to reflect that these tax assets may not be realized. In determining whether a valuation allowance is appropriate, the Company considers whether it is more likely than not that all or some portion of the Company's deferred tax assets will not be realized, based on management's judgment using available evidence about future events.

At times, tax benefits claims may be challenged by a tax authority. Tax benefits are recognized only for tax positions that are more likely than not sustainable upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for "unrecognized tax benefits" is recorded for any tax benefits claimed in the Company's tax returns that do not meet these recognition and measurement standards.

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**Revenue recognition** 

The Company accounts for revenue in accordance with topic 606, Revenue from Contracts with Customers, ("ASC 606") and Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers. Under ASC 606, an entity recognizes revenue in a manner that reflects the transfer of promised goods or services to customers in an amount which the entity expects to be entitled in exchange for those goods or services.

The Company recognizes revenue upon transfer of control of promised goods or services to customers at transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for sales incentives related to current period product revenue. Revenue is measured at the fair value of the consideration received or receivable, after discounts, rebates and sales taxes or income taxes and duties.

Product sales

The Company recognizes revenue upon transfer of control of products to the customer, which typically occurs upon shipment. The Company's main performance obligation to customers is the delivery of products in accordance with purchase orders. Each purchase order defines the transaction price for the products purchased under the arrangement. Construction Partners typically sell DIRTT product to end clients and issue purchase orders to the Company to manufacture the product. Construction Partners utilize ICE licenses to sell DIRTT products, the ICE licenses sold to Construction Partners are not considered a separate performance obligation as they are not distinct, and ICE license revenue is recognized in conjunction with product sales. The Construction Partner ICE Software revenue is recognized over the license period.

The Company's standard sales terms are Free On Board ("FOB") shipping point, which comprise the majority of sales. The Company usually requires a 50% progress payment on receipt of certain orders, excluding certain government orders or in some special contractual situations. Customer deposits received are recognized as a liability on the balance sheet until revenue recognition criteria is met. At the point of shipment, the customer is generally required to pay the balance of the sales price within 30 days. The Company's sales arrangements do not have any material financing components. In addition, the Company's customer arrangements do not produce contract assets that are material to its consolidated financial statements.

The Company provides sales commissions to internal and external sales representatives which are earned in the period in which revenue is recognized.

The Company accounts for product transportation revenue and costs as fulfillment activities and present the associated costs in costs of goods sold in the period in which the Company sells its product.

Contracts containing multiple performance obligations

The Company offers certain arrangements whereby a customer can purchase products and installation together which are generally capable of being distinct and accounted for as separate performance obligations. Where multiple performance obligations exist, the Company determines revenue recognition by (1) identifying the contract with the customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations based on the relative standalone selling prices, typically based on cost plus a reasonable margin, and (5) recognizing revenue as the performance obligations are satisfied.

Installation and other services

The Company provides installation and other services for certain customers as a distinct performance obligation. Revenue from installation services is recognized over time as the service is performed.

Principal vs Agent Considerations

The Company evaluates the presentation of revenue on a gross vs. net basis based on whether it acts as a principal by controlling the product or service sales to customers. In certain instances, the Company facilitates contracting of certain sales on behalf of Construction Partners. The Company records these revenues on a gross basis when the Company is obligated to fulfill the service and has the risk associated with service delivery. The Company records these revenues on a net basis when the Construction Partner has the obligation to fulfill the services and has the risk associated with service delivery.

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Construction Partner rebates

Rebates to Construction Partners ("Partner Rebates") are accrued for and recognized as a reduction of revenue at the date of the sale to the customer. Partner Rebates include amounts collected directly by the Company owed to Construction Partners in accordance with their Construction Partner agreements, being the difference between the price to the end customer and the Construction Partners' price. Other sales discounts are deducted immediately from sales invoices.

Contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing. As the Company's contracts are less than one year in duration, the Company has elected to apply the practical expedients to expense costs related to costs to obtain contracts and not disclose unfulfilled performance obligations. As deferred revenue and customer deposits are typically recognized during the year the Company does not account for financing elements.

Warranties

The Company provides a warranty on all products sold to its clients and Construction Partner's clients. Warranties are not sold separately to customers. Provisions for the expected cost of warranty obligations are recognized based on an analysis of historical costs for warranty claims relative to current activity levels and adjusted for factors based on management's assessment that increase or decrease the provision. Warranty provision is recognized in cost of goods sold. Warranty claims have historically not been material and do not constitute a separate performance obligation.

**Stock-based compensation** 

The Company follows the fair value-based approach to account for options, share awards and restricted share units ("RSUs"). Compensation expense and an increase in "Additional paid-in capital" are recognized for options and RSUs over their vesting period based on their estimated fair values on the grant date, as determined using the Black-Scholes option pricing model for the majority of options and the market value of the Company's common shares on the grant date for share awards and RSUs. Certain executive stock options and RSUs have performance conditions and are valued using a Monte Carlo model.

On exercise of stock options and RSUs, the recorded fair value of the option or RSU is removed from "Additional paid-in capital" and credited to "Share capital". For options, any consideration paid by employees is credited to "Share capital" when the option is exercised. The Company's stock options and RSUs are not shares of the Company and have no rights to vote, receive dividends, or any other rights as a shareholder of the Company.

Stock based compensation expense is also recognized for performance share units ("PSUs") and deferred share units ("DSUs") using the fair value method. Compensation expense is recognized over the vesting period and the corresponding amount is recorded as a liability on the balance sheet.

**Technology and development expenditures** 

Technology and development expenses are comprised primarily of salaries and benefits associated with the Company's product and software development personnel which do not qualify for capitalization. These costs are expensed as incurred and exclude certain information and technology costs used in operations which are classified as general and administrative costs.

**Government subsidies**

The Company accounts for government subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present government subsidies as other income. The nature, significant terms and conditions of government subsidies are disclosed in the financial statements. (Refer to Note 3 on adoption of Accounting Standards Update No. 2021-10,Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance,)

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**Earnings per share ("EPS")** 

Basic earnings per share is calculated using the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated using the treasury stock method for determining the dilutive impact of stock options. The Company follows the "if converted" method for accounting for the impact of convertible debentures on earnings (loss) per share, whereby interest charges applicable to the convertible debentures are added to the numerator and the convertible debentures are assumed to have been converted at the beginning of the period (or time of issuance, if later), and the resulting common shares are added to the denominator.

**Fair value of financial instruments** 

ASC 820, "Fair Value Measurements," requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company's fair value analysis is based on the degree to which the fair value is observable and grouped into categories accordingly:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 1 financial instruments are those which can be derived from quoted market prices (unadjusted) in active markets for similar financial assets or liabilities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 2 financial instruments are those which can be derived from inputs that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 financial instruments include current and long-term debt. The carrying amounts of these instruments approximates fair value due to limited changes to interest rates and the Company's credit rating since issuance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Level 3 financial instruments are those derived from valuation techniques that include inputs for the financial asset or liability which are not based on observable market data (unobservable inputs). The Company does not have any Level 3 financial instruments.

The carrying amounts of cash and cash equivalents and restricted cash; trade and accrued receivables, other receivables; accounts payable and accrued liabilities; other liabilities; and customer deposits approximate fair value due to their short-term nature.

**3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS** 

In 2021, the Financial Accounting Standards Board issued Accounting Standards Update No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The ASU provides guidance on required disclosures with respect to government assistance in a company's notes to the annual financial statements. The amendments in the ASU are effective for periods beginning after December 15, 2021. The Company has adopted this standard effective January 1, 2022 and notes there is no significant impact of this standard on our accounting or disclosures for government assistance.

Although there are several other new accounting standards issued or proposed by the Financial Accounting Standards Board, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its Financial Statements.

**4. LIQUIDITY**

The Company has been negatively impacted by the effect of COVID-19 on the non-residential construction industry, costs incurred associated with the Company's contested director elections, reorganization costs to reconstitute the executive team and align the Company's cost structure with current sales activity, and significant inflation on raw materials costs, which have resulted in a significant usage of cash in recent periods which has been funded through Convertible Debentures and Leasing Facilities entered into in the prior year (refer to Note 14). As at December 31, 2022, the Company had $10.8 million of cash on hand and C$7.2 million ($5.3 million) of available borrowings (December 31, 2021 - $60.3 million and $10.4 million of available borrowings).

We have implemented a number of restructuring initiatives to create a reduced cost structure moving forward (refer to Note 6) and have implemented multiple price increases during the year to mitigate the impact of inflation on raw material costs. While these actions and our project pipeline are promising, we continue to see unpredictability in our pace of orders. As a result, the Company has initiated certain actions to improve our balance sheet in the short term. First, we are evaluating initiatives related to the use of ICE software by third parties to supplement the relatively small revenues we have previously recognized from our licensing of ICE software to certain strategic partners for use in their businesses and our related licensing and developer software support for these counterparties. Second, we have certain properties that are currently owned that we are evaluating for potential sale and lease back

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arrangements. We do not intend to vacate these premises as they still serve a valuable aspect of our value proposition, but this type of arrangement would provide us with a one-time cash payment in the near term, in exchange for future rent payments. We expect these strategic initiatives to result in positive cash inflows in 2023. As these transactions are awaiting finalization, we completed a Private Placement (defined in Note 21) of common shares, supported by significant shareholders and directors and officers of the Company to bridge cash requirements between now and the completion and closing of the noted strategic transactions (refer to Note 21).

We have assessed the Company's liquidity position as at December 31, 2022 using multiple scenarios taking into account our sales outlook for the next year, our existing cash balances and available credit facilities and the probability of executing the strategic transactions noted above. Based on this analysis we believe the Company has sufficient liquidity to support ongoing operations for the next twelve months. However, should anticipated profitable growth and increased labor headcount and manufacturing capacity not occur or should there be a delayed recovery of the North American construction activities from the pandemic, a sustained economic depression and its adverse impacts on customer demand or significant inflationary pressure on raw materials and transportation cost that we are unable to recover through price increases, the Company will need to identify alternative sources of financing, further reduce its cost structure, delay capital expenditures, evaluate potential asset sales and potentially curtail or cease certain operations. While the Company is confident that it will be able to raise additional capital when needed or under acceptable terms, there can be no absolute assurance it will be able to do so.

**5. COVID-19**

The impact of the COVID-19 pandemic on our future consolidated results of operations remains uncertain. The extent to which COVID-19 impacts our employees, operations, customers, suppliers and financial results depends on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic (and whether there is a resurgence or multiple resurgences in the future, including the impact of new variants); government actions taken in response to the pandemic, including required shutdowns or vaccine or testing mandates; the availability, acceptance, distribution and continued effectiveness of vaccines; the impact on construction activity, including the effect on our customers' demand for our interior construction systems; supply chain disruptions; rising inflation; labor shortages; sustained remote or hybrid work models; our ability to manufacture and sell our products; and the ability of our customers to pay for our products. While many of our products support life-sustaining activities and essential construction, we and certain of our customers or suppliers may be impacted by national, federal, state and provincial actions, orders and policies regarding the COVID-19 pandemic, including: temporary closures of non-life-sustaining businesses, shelter-in-place orders, and travel, social distancing and quarantine policies, the implementation and enforcement of which vary in each of the jurisdictions in which we operate. We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during the years ended December 31, 2022 and 2021, but future events may require such charges which could have a material adverse effect on our financial condition, liquidity or results of operations.

Government subsidies

In the United States, the Employee Retention Credit ("ERC") was established by Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") to provide an incentive for employers to keep their employees on their payroll during COVID-19 closures. The ERC is a refundable payroll tax credit based on qualified wages paid by an eligible employer between March 12, 2020, and October 1, 2021 for companies experiencing a significant decline in gross receipts during a calendar quarter or having operations fully or partially suspended during the quarter due to COVID-19. During the third quarter of 2022, the Company determined it was eligible for the ERC for the first three quarters of 2021 and has filed a claim for $7.3 million in payroll tax credits ($7.1 million net of expenses). As of December 31, 2022 these credits have not been received and are included in other receivables in the balance sheet.

As part of the Canadian federal government's COVID-19 Economic Response Plan, the Canadian government established the Canadian Emergency Wage Subsidy ("CEWS"). The CEWS provided the Company with a taxable subsidy in respect of a specific portion of wages paid to Canadian employees during qualifying periods extending from March 15, 2020 to October 23, 2021 based on the percentage decline of certain of the Company's Canadian sourced revenues during each qualifying period. The Company's eligibility for the CEWS was subject to change for each qualifying period and was reviewed by the Company for each qualifying period, with amounts being received by the Company for various, but not each, qualifying period. Pursuant to amendments enacted as part of the 2021 Canadian federal budget, the Company is required to repay a portion of the CEWS amounts received for any qualifying period commencing after June 5, 2021 where the aggregate compensation for "specified executives" (within the meaning of the CEWS) during the 2021 calendar year exceeds the aggregate compensation for "specified executives" during the 2019 calendar year. Upon finalization of 2021 compensation to specified executives, approximately C$0.5 million ($0.4 million) of subsidies was repaid to the Canadian authorities in the second quarter of 2022. The repayment amount was fully provided for in the third quarter of 2021 in accounts payable and accrued liabilities and in the first quarter of 2022 the Company reversed a $0.6 million incremental provision related to this that is no longer necessary.

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On November 19, 2020, the Canadian government also implemented the Canada Emergency Rent Subsidy ("CERS"). The CERS provided a taxable subsidy to cover eligible expenses for qualifying properties, subject to certain maximums, for qualifying periods extending from September 27, 2020 to October 23, 2021, with the amount of the subsidy available to the Company being based on the percentage decline of certain of the Company's Canadian-sourced revenues in each qualifying period. The Company's eligibility for the CERS was subject to change for each qualifying period and was reviewed by the Company for each qualifying period.

The last claim period under the CEWS and CERS programs ended on October 23, 2021. The Company is not eligible and did not receive any new Canadian government subsidies in year ended December 31, 2022.

**6. REORGANIZATION** 

During the year ended December 31, 2022, the Company undertook a number of reorganization initiatives:

**Closure of Phoenix Aluminum Manufacturing Facility (the "Phoenix Facility")**

On February 22, 2022, we commenced the process of closing our Phoenix Facility, shifting related manufacturing to both our Savannah and Calgary aluminum manufacturing facilities. The closure of the Phoenix Facility was substantially completed in the second quarter of 2022. The Company entered into a sublease arrangement during the second quarter of 2022, commencing July 1, 2022, which exceeds the contractual lease commitments under the Right of Use assets.

**Workforce Reductions, Board and Management Changes**

In February and July of 2022, we announced our intention to eliminate a portion of our salaried workforce including manufacturing and office positions along with other cost reduction initiatives. The Company's Board of Directors was reconstituted following a contested proxy contest in April 2022 which was deemed a change of control under the Company's insurance policy resulting in additional insurance expenditures. Further, the Company made changes to several executive officer roles during the year ended December 31, 2022, which resulted in incurring certain termination benefits and recruitment costs.

**Temporary Suspension of Operations at Rock Hill, South Carolina (the "Rock Hill Facility")**

On August 23, 2022, we announced the temporary suspension of operations at our Rock Hill Facility, shifting related manufacturing to our Calgary manufacturing facility.

Reorganization costs incurred:

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| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** |
| Termination benefits | 7042 |  |
| Insurance costs on change of control | 3691 |  |
| Phoenix Facility closure | 756 |  |
| Professional services | 1021 |  |
| Relocation and other costs | 951 |  |
| **Total reorganization costs** | 13461 |  |
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** |
| Opening reorganization costs in accounts payable and accrued liabilities | - |  |
| Reorganization expense | 13461 |  |
| Reorganization costs paid | (11184) |  |
| **Reorganization costs in accounts payable and accrued liabilities at December 31, 2022** | 2277 |  |

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Of the $2.3 million payable, $2.1 million relates to termination benefits and $0.2 million relates to other reorganization costs.

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**Discontinuation of Reflect Product Line and Other Charges Incurred** 

In August 2022, the Company discontinued the Reflect and other product lines, resulting in a one time inventory write-down of $1.0 million, and an acceleration of amortization expense associated with ICE development for Reflect.

Additionally, the Company accelerated the depreciation of certain items of property, plant and equipment associated with the closure of the Phoenix Facility resulting in additional depreciation incurred in the first quarter of 2022.

These costs were included in cost of sales:

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| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** |
| Provision for inventory of discontinued product lines | 1035 |  |
| Accelerated amortization associated with product line discontinuation | 1019 |  |
| Accelerated depreciation and amortization associated with closure of the Phoenix Facility | 1054 |  |
| **Incremental cost of sales** | 3108 |  |

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**7. LEASES** 

The Company leases office and factory space under various operating leases. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company gives consideration to instruments with similar characteristics when calculating its incremental borrowing rate. The Company's operating leases have remaining lease terms of 1 year to 23 years. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The weighted average remaining lease term and weighted average discount rate at December 31, 2022 were 13 years (2021 - 14 years) and 4.9% (2021 – 5.2%), respectively.

The following table includes ROU assets included on the balance sheet at December 31, 2022 and 2021:

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| | | | |
|:---|:---|:---|:---|
|  | **ROU Assets** | **ROU Assets** | **ROU Assets** |
|  | **Cost** | **Accumulated depreciation** | **Net book value** |
| **At January 1, 2021** | 41840 | **(**8197**)** | 33643 |
| Additions | 2401 | - | 2401 |
| Depreciation expense | - | (4989) | (4989) |
| Exchange differences | (186) | 11 | (175) |
| **At December 31, 2021** | 44055 | **(**13175**)** | 30880 |
| Additions | 139 | - | 139 |
| Modifications | 4809 | 50 | 4859 |
| Depreciation expense | - | (5057) | (5057) |
| Exchange differences | (943) | 611 | (332) |
| **At December 31, 2022** | 48061 | **(**17571**)** | 30490 |

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The following table includes lease liabilities included on the balance sheet at December 31, 2022 and 2021:

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| | | |
|:---|:---|:---|
|  | **Lease Liability** | **Lease Liability** |
|  | **2022** | **2021** |
| **At January 1,** | 33481 | 35284 |
| Additions | 139 | 2401 |
| Modifications | 4809 | - |
| Accretion | 1722 | 1758 |
| Repayment of lease liabilities | (6558) | (6509) |
| Lease inducements | 124 | 720 |
| Exchange differences | (295) | (173) |
| **At December 31,** | 33423 | 33481 |
| Current lease liabilities | 5889 | 6214 |
| Long-term lease liabilities | 27534 | 27267 |

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The following table includes maturities of operating lease liabilities at December 31, 2022:

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| | |
|:---|:---|
| 2023 | 6038 |
| 2024 | 4630 |
| 2025 | 4605 |
| 2026 | 4013 |
| 2027 | 2826 |
| Thereafter | 26631 |
| **Total** | 48743 |
| **Total lease liability** | 33423 |
| Difference between undiscounted cash flows and lease liability | 15320 |

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**8. TRADE AND ACCRUED RECEIVABLES AND OTHER RECEIVABLES** 

Accounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates an allowance for credit losses using the lifetime expected credit loss at each measurement date taking into account historical credit loss experience as well as forward-looking information in order to establish rates for each class of financial receivable with similar risk characteristics. Adjustments to this estimate are recognized in the statement of operations.

In order to manage and assess our risk, management maintains credit policies that include regular review of credit limits of individual receivables and systematic monitoring of aging of trade receivables and the financial wellbeing of our customers. In addition, we acquired trade credit insurance effective April 1, 2020. At December 31, 2022, approximately 77% of our trade accounts receivable are insured, relating to accounts receivables from counterparties deemed creditworthy by the insurer and excluding accounts receivable from government entities.

Our trade balances are spread over a broad Construction Partner base, which is geographically dispersed. For the years ended December 31, 2022 and 2021 no Construction Partner accounted for greater than 10% of revenue. In addition, and where possible, we collect a 50% deposit on sales, excluding government and certain other clients.

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| | | |
|:---|:---|:---|
|  | **As at** | **As at** |
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| Current | 12381 | 13572 |
| Overdue | 1675 | 621 |
|  | 14056 | 14193 |
| Less: expected credit losses | (126) | (130) |
|  | 13930 | 14063 |

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During 2021, $0.5 million of receivables for a specific customer balance was written off. No change to our expected credit loss was required at December 31, 2022. Receivables are generally considered to be past due when over 60 days old unless there is a separate payment arrangement in place for the collection of the receivable.

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As at December 31, 2022, the Company classified Other Receivables separately from Trade and Accrued Receivables on the balance sheet, as reconciled below:

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| | | |
|:---|:---|:---|
|  | **As at,** | **As at,** |
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| Trade receivables | 14056 | 14193 |
| Allowance for doubtful accounts | (126) | (130) |
| Accounts receivable | 13930 | 14063 |
| Sales tax receivable | 251 | 196 |
| Income taxes receivable | 40 | 3194 |
| Government subsidies | 7319 | - |
| Other receivables | 270 | 87 |
| Other receivables (reclassified on the balance sheet) | 7880 | 3477 |
| Total Trade and other receivables, as previously presented | 21810 | 17540 |

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**9. INVENTORY** 

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| | | |
|:---|:---|:---|
|  | **As at December 31,** | **As at December 31,** |
|  | **2022** | **2021** |
| Raw material | 22218 | 18388 |
| Allowance for obsolescence | (1242) | (646) |
| Work in progress | 1275 | 715 |
|  | 22251 | 18457 |

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In 2022, the Company provided $1.1 million (2021 - $0.6 million) for inventory that is not expected to be used in future production and the associated expense was recorded to cost of goods sold. During 2022, the Company wrote off $0.5 million of inventory against the provision (2021 - $0.4 million) and increased the allowance for obsolescence by $0.9 million (2021 - $0.1 million) mainly related to the discontinuation of Reflect product lines. In addition, the Company recorded direct write offs against inventory of $0.3 million. Production overheads capitalized in work in progress were $0.2 million at December 31, 2022 (December 31, 2021 - $0.1 million).

Additional costs included in cost of goods sold

During 2021 and 2020, the Company experienced periods where it was operating below normal capacity levels. During that period, overheads included in inventory were not increased and $1.8 million (2020: $2.0 million) was included in cost of sales. Previously this was presented as a separate part of cost of sales in the Consolidated Statement of Operations. In 2022, we have temporarily suspended operations at the Rock Hill Facility. Idle facility costs being incurred at the Rock Hill Facility are included in cost of sales.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Underutilized capacity |  | - |  | 1,756 |  | 2,010 |
| Idle facility costs |  | 506 |  | - |  | - |
|  |  | 506 |  | 1,756 |  | 2,010 |

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Change in presentation in Consolidated Statement of Operations

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Product cost of sales, as previously presented |  | 140,058 |  | 118,525 |  | 113,445 |
| Cost of under utilized capacity, as previously presented |  | - |  | 1,756 |  | 2,010 |
| **Product cost of sales, per Statement of Operations** |  | 140,058 |  | 120,281 |  | 115,455 |

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**10. PROPERTY, PLANT AND EQUIPMENT, NET** 

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Office and computer equipment** | **Factory equipment** | **Leasehold improvements** | **Total** |
| **Cost** |  |  |  |  |
| **At December 31, 2020** | 24988 | 66523 | 43105 | 134616 |
| Additions | 3422 | 4515 | 4372 | 12309 |
| Disposals | - | (53) | - | (53) |
| Exchange differences | 236 | 499 | 90 | 825 |
| **At December 31, 2021** | 28646 | 71484 | 47567 | 147697 |
| Additions | 738 | 775 | 341 | 1854 |
| Disposals | (1347) | (2983) | (6688) | (11018) |
| Exchange differences | (581) | (3167) | (1457) | (5205) |
| **At December 31, 2022** | 27456 | 66109 | 39763 | 133328 |
| **Accumulated depreciation and impairment** |  |  |  |  |
| **At December 31, 2020** | 16362 | 35524 | 32883 | 84769 |
| Depreciation expense | 3589 | 3670 | 3817 | 11076 |
| Disposals | - | (23) | - | (23) |
| Exchange differences | 30 | 100 | 48 | 178 |
| **At December 31, 2021** | 19981 | 39271 | 36748 | 96000 |
| Depreciation expense | 2355 | 4425 | 3680 | 10460 |
| Disposals | (1272) | (2831) | (6688) | (10791) |
| Exchange differences | (540) | (2044) | (1279) | (3863) |
| **At December 31, 2022** | 20524 | 38821 | 32461 | 91806 |
| **Net book value** |  |  |  |  |
| **At December 31, 2021** | 8665 | 32213 | 10819 | 51697 |
| **At December 31, 2022** | 6932 | 27288 | 7302 | 41522 |

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As at December 31, 2022, the Company had $0.1 million of assets in progress of completion which were excluded from assets subject to depreciation (December 31, 2021 – $2.2 million).

During the year ended December 31, 2022, depreciation expense included $1.1 million of incremental depreciation on the acceleration of useful lives associated with the closing of the Phoenix Facility. Refer to Note 6, Reorganization.

During the year ended December 31, 2022, the Company has incurred negative cash flows from operations and accordingly management determined that this was an indicator of property, plant and equipment assets. The Company estimated the undiscounted cash flows to be generated from the use and ultimate disposition of the property, plant and equipment assets. To estimate the undiscounted cashflows of the reporting unit, the Company applied the income approach. Sales and cost projections were based on assumptions driven by current economic conditions. The Company considered various scenarios and probability-weighted the likelihood of each scenario in determining the reporting unit's fair value. The average compounded annual growth rate of revenues was 5%- 10%. Other key assumptions used in the quantitative assessment of the reporting unit's undiscounted cashflows was terminal growth rate of 2%. The Company estimated the undiscounted cash flows to be generated from the use and ultimate disposition of the property, plant and equipment assets. The results of the test indicated that the undiscounted cash flows exceeded the carrying values of property, plant and equipment, therefore, no impairment charge was required at December 31, 2022.

During the year ended December 31, 2021, goodwill was impaired (see Note 12) and determined that this was an indicator of impairment for property, plant and equipment. The Company estimated the undiscounted cash flows to be generated from the use and ultimate disposition of the property, plant and equipment assets using the same methodology and assumptions included in the goodwill impairment test (see Note 12). The results of the test indicated that the fair value exceeded the carrying values of property, plant and equipment, therefore, no impairment charge was required at December 31, 2021.

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**11. CAPITALIZED SOFTWARE, NET** 

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| | | |
|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** |
| &nbsp;&nbsp; **Cost** |  |  |
| &nbsp;&nbsp; **As at January 1** | 37492 | 35480 |
| &nbsp;&nbsp; Additions | 1677 | 2340 |
| &nbsp;&nbsp; Recovery of software development expenditures | (263) | (461) |
| &nbsp;&nbsp; Disposals | (1990) | - |
| &nbsp;&nbsp; Exchange differences | (2370) | 133 |
| &nbsp;&nbsp; **As at December 31** | 34546 | 37492 |
| &nbsp;&nbsp; **Accumulated amortization** |  |  |
| &nbsp;&nbsp; **As at January 1** | 30097 | 27136 |
| &nbsp;&nbsp; Amortization expense | 3887 | 2878 |
| &nbsp;&nbsp; Disposals | (1916) | - |
| &nbsp;&nbsp; Exchange differences | (1928) | 83 |
| &nbsp;&nbsp; **As at December 31** | 30140 | 30097 |
| &nbsp;&nbsp; **Net book value** | 4406 | 7395 |

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Estimated amortization expense on capitalized software is $1.6 million in 2023, $1.2 million in 2024, $1.0 million in 2025, $0.5 million in 2026, and $0.1 million in 2027.

During the year ended December 31, 2022, amortization expense was impacted by $1.0 million of incremental amortization on the acceleration of useful lives associated with discontinued product lines. Refer to Note 6, Reorganization.

**12. GOODWILL**

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| | | |
|:---|:---|:---|
|  | **For the year ended December 31,** | **For the year ended December 31,** |
|  | **2022** | **2021** |
| As at January 1 |  | 1449 |
| Impairment |  | (1443) |
| Exchange differences |  | (6) |
| As at December 31 |  | - |

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In 2021, the Company's goodwill was assessed at the consolidated company level which represents the Company's sole operating and reporting unit. The Company tested its goodwill for impairment annually during the fourth quarter of the calendar year. Due to the impact of the COVID-19 pandemic on its financial results in 2021, the Company determined it was necessary to use the quantitative approach to perform its goodwill impairment test. The quantitative impairment test requires estimates to determine the fair value of the reporting unit, as such, required the Company to make significant assumptions and judgments.

To estimate the fair value of the reporting unit, the Company applied the income approach using discounted future cash flows. Sales and cost projections were based on assumptions driven by current economic conditions. Due to the uncertainty around the future impact of COVID-19 at that time, its projections considered various scenarios and the Company probability-weighted the likelihood of each scenario in determining the reporting unit's fair value. The average compounded annual growth rate of revenues was 10% and the Company assumed a 10% - 15% annualized reduction in operating costs in the model. Other key assumptions used in the quantitative assessment of the reporting unit's goodwill were the application of a discount rate of 13% and a terminal growth rate of 2%.

Based on its testing, the fair value of goodwill did not exceed the recoverable amount and, accordingly, the entire $1.4 million balance of goodwill was impaired as at December 31, 2021. The impairment charge on goodwill has been separately classified on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.

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**13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND OTHER LIABILITIES** 

---

| | | |
|:---|:---|:---|
|  | **As at December 31,** | **As at December 31,** |
|  | **2022** | **2021** |
| Trade accounts payable | 5562 | 7820 |
| Accrued liabilities | 8776 | 9649 |
| Wages and commissions payable | 3410 | 4275 |
| Rebates accrued(1) | 2133 | 1007 |
|  | 19881 | 22751 |

---

<sup>(1)</sup> In 2022 $4.8 million of rebates were earned (2021 - $4.1 million) and $3.7 million were paid (2021 - $4.7 million).

Other liabilities

---

| | | |
|:---|:---|:---|
|  | **As at,** | **As at,** |
|  | **December 31, 2022** | **December 31, 2021** |
| Warranty provisions(1) | 1278 | 1451 |
| DSU liability | 594 | 785 |
| Sublease deposits | 139 | - |
| Other provisions | 45 | 143 |
| **Other liabilities** | 2056 | 2379 |

---

<sup>(1)</sup> The following table presents a reconciliation of the warranty and other provisions balance:

---

| | | |
|:---|:---|:---|
|  | **As at,** | **As at,** |
|  | **December 31, 2022** | **December 31, 2021** |
| **As at January 1** | 1451 | 1763 |
| Adjustments to timber provision | - | (500) |
| Additions to warranty provision | 1134 | 1019 |
| Payments related to warranties | (1307) | (831) |
|  | 1278 | 1451 |

---

**14. LONG-TERM DEBT** 

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Revolving <br>Credit Facility** | **Leasing <br>Facilities** | **Convertible <br>Debentures** | **Total Debt** |
| **Balance on December 31, 2020** |  | 5967 | - | 5967 |
| Issuances |  | 9805 | 55107 | 64912 |
| Accretion of issue costs |  | - | 352 | 352 |
| Accrued interest |  | 556 | 1935 | 2491 |
| Interest payments |  | (556) | (987) | (1543) |
| Principal repayments |  | (1808) | - | (1808) |
| Exchange differences |  | (55) | 326 | 271 |
| **Balance at December 31, 2021** |  | 13909 | 56733 | 70642 |
| Current portion of long-term debt and accrued interest |  | 2386 | 937 | 3323 |
| Long-term debt |  | 11523 | 55796 | 67319 |
| **Balance on December 31, 2021** |  | 13909 | 56733 | 70642 |
| Issuances |  | 647 | - | 647 |
| Accretion of issue costs |  | - | 676 | 676 |
| Accrued interest |  | 735 | 3539 | 4274 |
| Interest payments |  | (735) | (3688) | (4423) |
| Principal repayments |  | (2470) | - | (2470) |
| Exchange differences |  | (274) | (3637) | (3911) |
| **Balance at December 31, 2022** |  | 11812 | 53623 | 65435 |
| Current portion of long-term debt and accrued interest |  | 2561 | 745 | 3306 |
| Long-term debt |  | 9251 | 52878 | 62129 |

---

------

Revolving Credit Facility

On February 12, 2021, the Company entered into a C$25.0 million senior secured revolving credit facility with RBC (the " RBC Facility"), replacing the Previous RBC Facility. Under the RBC Facility, the Company is able to borrow up to a maximum of 90% of investment grade or insured accounts receivable plus 85% of eligible accounts receivable plus the lesser of 75% of the book value of eligible inventory and 85% of the net orderly liquidation value of eligible inventory less any reserves for potential prior ranking claims (the "Borrowing Base"). At December 31, 2022, available borrowings are C$7.2 million ($5.3 million), of which no amounts have been drawn. Interest is calculated at the Canadian or U.S. prime rate plus 30 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 155 basis points. Under the RBC Facility, if the Aggregate Excess Availability, defined as the Borrowing Base less any loan advances or letters of credit or guarantee and if undrawn including unrestricted cash, is less than C$5.0 million, the Company is subject to a FCCR covenant of 1.10:1 on a trailing twelve month basis. Additionally, if the FCCR has been above 1.10:1 for the 3 immediately preceding months, the Company is required to maintain a reserve account equal to the aggregate of one-year of payments on the Leasing Facilities (defined below). The Company did not meet the 3 month FCCR requirement during the fourth quarter of 2022 which would result in requiring the restriction of $3.4 million of cash at December 31, 2022. Should an event of default occur or the Aggregate Excess Availability be less than C$6.25 million for 5 consecutive business days, the Company would enter a cash dominion period whereby the Company's bank accounts would be blocked by RBC and daily balances will set-off any borrowings and any remaining amounts made available to the Company.

On February 9, 2023, the Company extended the RBC Facility (the "Extended RBC Facility"). The Extended RBC Facility has an borrowing base of C$15 million and a one year term. Interest is calculated as at the Canadian or U.S. prime rate plus 75 basis points or at the Canadian Dollar Offered Rate or LIBOR plus 200 basis points. Under the Extended RBC Facility, until such time that the trailing twelve month FCCR is above 1.25 for three consecutive months, a cash balance equivalent to 1-years worth of Leasing Facilities payments must be maintained.

Leasing Facilities

The Company has a C$5.0 million equipment leasing facility in Canada (the "Canada Leasing Facility") and a $14.0 million equipment leasing facility in the United States (the "U.S. Leasing Facility" and, together with the Canada Leasing Facility, the "Leasing Facilities") with RBC, and one of its affiliates, which are available for equipment expenditures and certain equipment expenditures already incurred. The Leasing Facilities, respectively, have seven and five-year terms and bear interest at 4.25% and 5.59%. The U.S. Leasing Facility is amortized over a six-year term and extendable at the Company's option for an additional year.

During 2022, the Company received $nil (2021 - $9.8 million) of cash consideration under the U.S. leasing facility related to reimbursements for equipment purchases for its South Carolina Facility. During 2022, the Company received C$0.9 million ($0.7 million) (2021 - $nil) of cash consideration under the leasing facility in Canada. The associated financial liabilities are shown on the consolidated balance sheet in current other liabilities and long-term debt and other liabilities.

Convertible Debentures

On January 25, 2021, the Company completed a C$35 million ($27.5 million) bought-deal financing of convertible unsecured subordinated debentures with a syndicate of underwriters (the "January Debentures"). On January 29, 2021, the Company issued a further C$5.25 million ($4.1 million) of the January Debentures under the terms of an overallotment option granted to the underwriters. These January Debentures will mature and be repayable on January 31, 2026 (the "January Debentures Maturity Date") and will accrue interest at the rate of 6.00% per annum payable semi-annually in arrears on the last day of January and July of each year commencing on July 31, 2021 until the January Debentures Maturity Date, interest and principal are payable in cash or shares at the option of the Company. These January Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the January Debentures Maturity Date and the date specified by the Company for redemption of these January Debentures at a conversion price of C$4.65 per common share, being a ratio of approximately 215.0538 common shares per C$1,000 principal amount of the January Debentures. Costs of the transaction were approximately C$2.7 million, including the underwriters' commission.

On November 15, 2021, the Company completed a C$35 million ($27.4 million) bought-deal financing of convertible unsecured subordinated debentures with a syndicate of underwriters (the "December Debentures" and, together with the January Debentures, the "Debentures"). These convertible debentures will mature and be repayable on December 31, 2026 (the "December Debentures Maturity Date") and will accrue interest at the rate of 6.25% per annum payable semi-annually in arrears on the last day of June and

------

December of each year commencing on June 30, 2022 until the December Debentures Maturity Date, interest and principal are payable in cash or shares at the option of the Company. These December Debentures will be convertible into common shares of DIRTT, at the option of the holder, at any time prior to the close of business on the business day prior to the earlier of the December Debentures Maturity Date and the date specified by the Company for redemption of the December Debentures at a conversion price of C$4.20 per common share, being a ratio of approximately 238.0952 common shares per C$1,000 principal amount of the December Debentures. Costs of the transaction were approximately C$2.3 million including the underwriters' commission.

**15. INCOME TAXES**

Reconciliation of income taxes

The following reconciles income taxes calculated at the Canadian statutory rate with the actual income tax expense. The Canadian statutory rate includes federal and provincial income taxes. This rate was used because Canada is the domicile of the parent entity of the Company.

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Net loss before tax | (54942) | (53872) | (9194) |
| Canadian statutory rate | 24.4% | 23.3% | 24.2% |
| **Expected income tax** | **(**13406**)** | **(**12552**)** | **(**2225**)** |
| Effect on taxes resulting from: |  |  |  |
| Valuation allowance | 13590 | 12046 | 5241 |
| Non-deductible expenses | 422 | 542 | 261 |
| Non-deductible stock-based compensation | 23 | 189 | 269 |
| Tax rate impacts | (665) | (488) | (1288) |
| Adjustments related to prior year tax filings | 57 | 59 | (105) |
| Other | - | - | (49) |
| **Income tax expense (recovery)** | 21 | **(**204**)** | 2104 |
| Current tax expense (recovery) | 21 | 210 | (3521) |
| Deferred tax expense (recovery) | - | (414) | 5625 |
| **Income tax expense (recovery)** | 21 | **(**204**)** | 2104 |

---

The provision for income taxes is comprised of federal, state, provincial and foreign taxes based on pre-tax income. In the United States, the CARES Act of 2020 allows, among other provisions, for the recovery of taxes paid over the preceding five years from current year losses.

Deferred tax assets and liabilities

Significant components of the Company's deferred tax assets and liabilities at December 31, 2022 and 2021 were as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **At December 31, 2022** | **At December 31, 2022** | **At December 31, 2022** |
|  | **Assets** | **Liabilities** | **Net** |
| Operating losses | 33740 | - | 33740 |
| Research and development expenditures | 336 | - | 336 |
| Property and equipment | - | (6017) | (6017) |
| Capitalized software and other assets | - | (1599) | (1599) |
| Valuation allowance | - | (29812) | (29812) |
| Other | 3352 | - | 3352 |
| **Net deferred taxes** | 37428 | **(**37428**)** | - |

---

------

---

| | | | |
|:---|:---|:---|:---|
|  | **At December 31, 2021** | **At December 31, 2021** | **At December 31, 2021** |
|  | **Assets** | **Liabilities** | **Net** |
| Operating losses | 24032 | - | 24032 |
| Research and development expenditures | 362 | - | 362 |
| Property and equipment | - | (7572) | (7572) |
| Capitalized software and other assets | - | (2023) | (2023) |
| Valuation allowance | (17291) | - | (17291) |
| Other |  | 2492 | 2492 |
| **Net deferred taxes** | 7103 | **(**7103**)** | - |

---

Summary of temporary difference movements during the year:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Balance** | **Recognized** | **Foreign** | **Balance** |
|  | **January 1, 2022** | **in Income** | **Exchange** | **December 31, 2022** |
| Operating losses | 24032 | 10924 | (1216) | 33740 |
| Research and development expenditures | 362 | (3) | (23) | 336 |
| Property and equipment | (7572) | 1410 | 145 | (6017) |
| Capitalized software and other assets | (2023) | 311 | 113 | (1599) |
| Valuation allowance | (17291) | (13590) | 1069 | (29812) |
| Other | 2492 | 948 | (88) | 3352 |
| **Net deferred taxes** | - | - | **-** | **-** |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Balance** | **Recognized** | **Foreign** | **Balance** |
|  | **January 1, 2021** | **in Income** | **Exchange** | **December 31, 2021** |
| Operating losses | 9528 | 14542 | (38) | 24032 |
| Research and development expenditures | 360 | (87) | 89 | 362 |
| Property and equipment | (4588) | (2844) | (140) | (7572) |
| Capitalized software and other assets | (2218) | 209 | (14) | (2023) |
| Valuation allowance | (5330) | (12046) | 85 | (17291) |
| Other | 1834 | 640 | 18 | 2492 |
| **Net deferred taxes** | **(**414**)** | 414 | - | - |

---

For the year ended December 31, 2022, the Company recorded valuation allowances of $13.6 million against deferred tax assets ("DTAs") incurred during the year as the Company has experienced cumulative losses in recent years (December 31, 2021 –$12.0 million). Although earnings were positive in 2019, ongoing near-term uncertainties on the business caused by the COVID-19 pandemic and the related decline in business activity impacted the Company's ability to generate earnings. Accordingly, it is not more likely than not that the Company's DTAs will be utilized in the near term.

The amount shown on the balance sheet as deferred income tax liabilities represent the net differences between the tax basis and book carrying values on the Company's balance sheet at enacted tax rates.

On an annual basis the Company and its subsidiaries file tax returns in Canada and various foreign jurisdictions. In Canada, the Company's federal and provincial tax returns for the years 2019 to 2021 remain subject to examination by taxation authorities. In the United States, both the federal and state tax returns filed for the years 2018 to 2021 remain subject to examination by the taxation authorities.

------

Tax loss carryforwards and other tax pools

The significant components of the Company's net future income tax deductions in these consolidated financial statements are summarized as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2022** | **2021** | **2022** | **2021** |
|  | **C$** | **C$** | **$** | **$** |
| Non-capital loss carry-forwards | 106730 | 64961 | 55654 | 42220 |
| Undepreciated capital costs | 9207 | 12267 | 9765 | 10268 |
| Share issuance costs | 3603 | - | - | - |
| Scientific research and experimental development <br> tax incentives | 1971 | 1971 | - | - |
| **Total future tax deductions** | 121511 | 79199 | 65419 | 52488 |

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**16. STOCK-BASED COMPENSATION**

In May 2020, shareholders approved the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (the "2020 LTIP") at the annual and special meeting of shareholders. The 2020 LTIP gives the Company the ability to award options, share appreciation rights, restricted share units, restricted shares, dividend equivalent rights granted in connection with restricted share units, vested share awards, and other share-based awards and cash awards to eligible employees, officers, consultants and directors of the Company and its affiliates. In accordance with the 2020 LTIP, the sum of (i) 5,850,000 common shares plus (ii) the number of common shares subject to stock options previously granted under the Company's Amended and Restated Incentive Stock Option Plan (the "Stock Option Plan") that, following May 22, 2020, expire or are canceled or terminated without having been exercised in full have been reserved for issuance under the 2020 LTIP. Upon vesting of certain LTIP awards, the Company may withhold and sell shares as a means of meeting DIRTT's tax withholding requirements in respect of the withholding tax remittances required in respect of award holders. To the extent the fair value of the withheld shares upon vesting exceeds the grant date fair value of the instrument, the excess amount is credited to retained earnings or deficit.

The change of 100% of the Board of Directors combined with the prior Board declining to endorse the incoming board constituted a Change of a Control, under the terms of the 2020 LTIP, as of April 26, 2022. As a result, all outstanding and unvested LTIP awards granted under the 2020 LTIP plan for any holder terminated without Cause within twelve (12) months following the Change of Control vested immediately upon such termination.

The Company also maintains the DIRTT Environmental Solutions Ltd. Deferred Share Unit Plan for Non-Employee Directors pursuant to which deferred share units ("DSUs") are granted to the Company's non-employee directors. DSUs are settled solely in cash.

Prior to the approval of the 2020 LTIP, the Company granted awards of options under the Stock Option Plan and awards of performance share units ("PSUs") under the DIRTT Environmental Solutions Ltd. Performance Share Unit Plan (the "PSU Plan"). Following the approval of the 2020 LTIP, no further awards will be made under either the Stock Option Plan or the PSU Plan, but both remain in place to govern the terms of any awards that were granted pursuant to such plans and remain outstanding

Stock-based compensation expense

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Equity-settled awards |  | 3,943 |  | 4,453 |  | 1,832 |
| Cash-settled awards |  | 334 |  | 260 |  | 519 |
|  |  | 4,277 |  | 4,713 |  | 2,351 |

---

------

The following summarizes RSUs (as defined below), Share awards, PSUs, and DSUs activity during the periods:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **RSU Time-** | **RSU Performance-** | **Share** |  |  |
|  | **Based** | **Based** | **Awards** | **PSU** | **DSU** |
|  | **Number of** | **Number of** | **Number of** | **Number of** | **Number of** |
|  | **units** | **units** | **units** | **units** | **units** |
| **Outstanding at December 31, 2020** | 2414063 | 200000 | **-** | 197471 | 363664 |
| Granted | 1976697 | 878601 | - | - | 144969 |
| Vested | (661775) | (2294) | - | (34635) | (147056) |
| Withheld to settle employee tax obligations | (174103) | (1960) | - | - | - |
| Forfeited | (338346) | (52608) | - | (5636) | - |
| **Outstanding at December 31, 2021** | 3216536 | 1021739 | **-** | 157200 | 361577 |
| Granted | 2157149 | 863279 | 222170 | - | 1305658 |
| Vested or settled | (2199034) | (796011) | (154016) | - | (501916) |
| Withheld to settle employee tax obligations | (526346) | (242460) | (68154) | - | - |
| Forfeited | (762968) | (502628) | - | - | - |
| Expired | - | - | - | (157200) | - |
| **Outstanding at December 31, 2022** | 1885337 | 343919 | **-** | **-** | 1165319 |

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Restricted share units (time-based vesting)

Restricted share units that vest based on time have an aggregate time-based vesting period of three years and generally one-third of the RSUs vest every year over a three-year period from the date of grant (the "RSU's"). At the end of a three-year term, the associated RSUs will be settled by way of the provision of cash or shares to employees (or a combination thereof), at the discretion of the Company. The weighted average fair value of the RSUs granted in 2022 was C$2.37 (2021 – C$2.78) which was determined using the closing price of the Company's common shares on their respective grant dates.

Restricted share units (performance-based vesting)

During 2022 and 2021, restricted share units were granted to executives with service and performance-based conditions for vesting (the "PRSUs"). If the Company's share price increases to certain values for 20 consecutive trading days, as outlined below, a percentage of the PRSUs will vest at the end of the three-year service period. All PRSUs awarded in 2020 were awarded to a single executive who forfeited those awards in January 2022 upon departure from the Company.

The grant date fair value of the 2022 and 2021 PRSUs were valued using the Monte Carlo valuation method and determined to have a weighted average grant date fair value of C$1.87 and C$3.27, respectively.

Based on share price performance since the date of grant, none of the 2022 PRSUs and 66.7% of the 2021 PRSUs will vest upon completion of the three-year service period.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **% of PRSUs Vesting** | **% of PRSUs Vesting** | **% of PRSUs Vesting** | **% of PRSUs Vesting** | **% of PRSUs Vesting** |
|  | 33.3 | **%** | 66.7 | 100.0 | 150.0 |
| 2022 and 2021 PRSUs | $3.00 |  | $4.00 | $5.00 | $7.00 |

---

Share awards

During the first quarter of 2022, certain executives were issued share awards in lieu of cash paid variable incentive compensation ("Share Awards"). These Share Awards vested upon grant. The fair value of the Share Awards granted was C$2.40 ($1.88), which was determined using the closing price of the Company's common shares on the grant date. In the fourth quarter of 2022, 59,488 Share Awards were issued to employees as a component of their compensation.

During the third quarter of 2022, certain executives were provided a variable compensation plan for the achievement of certain financial targets payable partially in cash and partially in share awards. Based on the Company's performance to date relative to the financial targets, no share awards have been recorded under this compensation plan for the year ended December 31, 2022. Under the plan, 1.3 million shares could have been awarded if the maximum targets were achieved based on the Company's share price at December 31, 2022.

Deferred share units

The fair value of the liability and the corresponding expense is charged to profit or loss at the grant date. Subsequently, at each reporting date between the grant date and settlement date, the fair value of the liability is remeasured with any changes in fair value

------

recognized in profit or loss for the year. DSUs outstanding at December 31, 2022 had a fair value of $0.6 million which is included in other liabilities on the balance sheet (2021 – $0.8 million).

Options

The following summarizes options granted, exercised, forfeited and expired during the periods:

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| | | |
|:---|:---|:---|
|  | **Number of** | **Weighted average** |
|  | **options** | **exercise price C$** |
| **Outstanding at December 31, 2020** | 4774328 | 6.52 |
| Forfeited or expired | (709839) | 7.07 |
| **Outstanding at December 31, 2021** | 4064489 | 6.64 |
| Forfeited or expired | (2584420) | 6.41 |
| **Outstanding at December 31, 2022** | 1480069 | 7.03 |
| **Exercisable at December 31, 2022** | 1480069 | 7.03 |

---

Range of exercise prices outstanding at December 31, 2022:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Options outstanding** | **Options outstanding** | **Options outstanding** | **Options exercisable** | **Options exercisable** | **Options exercisable** |
|  |  | **Weighted** | **Weighted** |  | **Weighted** | **Weighted** |
|  |  | **average** | **average** |  | **average** | **average** |
|  | **Number** | **remaining** | **exercise** | **Number** | **remaining** | **exercise** |
| **Range of exercise prices** | **outstanding** | **life** | **price C$** | **exercisable** | **life** | **price C$** |
| C$4.01 – C$6.00 | 15025 | 1.89 | 4.12 | 15025 | 1.89 | 4.12 |
| C$6.01 – C$7.00 | 758142 | 1.07 | 6.33 | 758142 | 1.07 | 6.33 |
| C$7.01 – C$8.00 | 706902 | 1.37 | 7.84 | 706902 | 1.37 | 7.84 |
| **Total** | 1480069 |  |  | 1480069 |  |  |

---

Range of exercise prices outstanding at December 31, 2021:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Options outstanding** | **Options outstanding** | **Options outstanding** | **Options exercisable** | **Options exercisable** | **Options exercisable** |
|  |  | **Weighted** | **Weighted** |  | **Weighted** | **Weighted** |
|  |  | **average** | **average** |  | **average** | **average** |
|  | **Number** | **remaining** | **exercise** | **Number** | **remaining** | **exercise** |
| **Range of exercise prices** | **outstanding** | **life** | **price C$** | **exercisable** | **life** | **price C$** |
| C$4.01 – C$6.00 | 22537 | 2.89 | 4.12 | 15025 | 2.89 | 4.12 |
| C$6.01 – C$7.00 | 3281199 | 1.79 | 6.38 | 1549301 | 1.87 | 6.36 |
| C$7.01 – C$8.00 | 760753 | 2.37 | 7.84 | 515153 | 2.37 | 7.84 |
| **Total** | 4064489 |  |  | 2079479 |  |  |

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Dilutive instruments

For the year ended December 31, 2022, 1.5 million options (2021 – 4.1 million, 2020 – 4.8 million) and 2.2 million RSUs and PRSUs (2021 – 3.4 million, 2020 - 2.7 million) and 109.1 million shares which would be issued if the principal amount of the Debentures were settled in our common shares at the year end share price (2021- 27.4 million and 2020 - nil) were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive to the net loss per share.

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**17. REVENUE** 

In the following table, revenue is disaggregated by performance obligation and timing of revenue recognition. All revenue comes from contracts with customers. See Note 18 for the disaggregation of revenue by geographic region.

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| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Product | 147448 | 129031 | 150004 |
| Transportation | 18030 | 13231 | 15491 |
| License fees from Construction Partners | 778 | 738 | 1194 |
| **Total product revenue** | 166256 | 143000 | 166689 |
| Installation and other services | 5905 | 4593 | 4818 |
|  | 172161 | 147593 | 171507 |

---

DIRTT sells its products and services pursuant to fixed-price contracts which generally have a term of one year or less. The transaction price used in determining the amount of revenue to recognize from fixed-price contracts is based upon agreed contractual terms with each customer and is not subject to variability.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| At a point in time |  | 165,478 |  | 142,262 |  | 165,495 |
| Over time |  | 6,683 |  | 5,331 |  | 6,012 |
|  |  | 172,161 |  | 147,593 |  | 171,507 |

---

Revenue recognized at a point in time represents the majority of the Company's sales. Revenue is recognized when a customer obtains legal title to the product, which is when ownership of the product is transferred to, or services are delivered to, the customer. Revenue recognized over time is limited to installation and ongoing maintenance contracts with customers and is recorded as performance obligations are satisfied over the term of the contract.

Contract Liabilities

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **As at December 31,** | **As at December 31,** | **As at December 31,** | **As at December 31,** | **As at December 31,** | **As at December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Customer deposits |  | 4,458 |  | 1,959 |  | 1,292 |
| Deferred revenue |  | 408 |  | 461 |  | 527 |
| Contract liabilities |  | 4,866 |  | 2,420 |  | 1,819 |

---

Contract liabilities primarily relate to deposits received from customers and maintenance revenue from license subscriptions. The balance of contract liabilities was higher as at December 31, 2022 compared to the prior year period mainly due to the timing of orders and payments. Contract liabilities as at December 31, 2021 and 2020, respectively, totaling $2.4 million and $1.8 million were recognized as revenue during 2022 and 2021, respectively.

Sales by Industry

The Company periodically reviews product revenue by industry vertical market to evaluate trends and the success of industry specific sales initiatives. The nature of products sold to the various industries is consistent and therefore the periodic review is focused on sales performance.

---

| | | | |
|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2021** | **2020** |
| Commercial | 115102 | 84488 | 102245 |
| Healthcare | 19739 | 30130 | 35400 |
| Government | 16564 | 16012 | 14128 |
| Education | 14073 | 11632 | 13722 |
| License fees from Construction Partners | 778 | 738 | 1194 |
| **Total product and transportation revenue** | 166256 | 143000 | 166689 |
| Installation and other services | 5905 | 4593 | 4818 |
|  | 172161 | 147593 | 171507 |

---

------

**18. SEGMENT REPORTING** 

The Company has one reportable and operating segment and operates in two principal geographic locations, Canada and the United States. Revenue continues to be derived almost exclusively from projects in North America and predominantly from the United States. The Company's revenue from operations from external customers, based on location of operations, and information about its non-current assets, is detailed below.

Revenue from external customers

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** | **For the Year Ended December 31,** |
|  | **2022** | **2022** | **2021** | **2021** | **2020** | **2020** |
| Canada |  | 25,477 |  | 17,299 |  | 18,848 |
| U.S. |  | 146,684 |  | 130,294 |  | 152,659 |
|  |  | 172,161 |  | 147,593 |  | 171,507 |

---

Non-current assets

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **As at December 31,** | **As at December 31,** | **As at December 31,** | **As at December 31,** |
|  | **2022** | **2022** | **2021** | **2021** |
| Canada |  | 28,251 |  | 34,912 |
| U.S. |  | 53,277 |  | 60,723 |
|  |  | 81,528 |  | 95,635 |

---

**19. COMMITMENTS** 

As at December 31, 2022, the Company had outstanding purchase obligations of approximately $2.2 million related to inventory and property, plant and equipment purchases (December 31, 2021 – $3.7 million). Refer to Note 7 for lease commitments.

**20. LEGAL PROCEEDINGS** 

The Company is pursuing multiple lawsuits against its former founders, Mogens Smed and Barrie Loberg, their new company Falkbuilt Ltd. ("Falkbuilt"), and other related individual and corporate defendants for violations of fiduciary duties and non-competition and non-solicitation covenants contained in their executive employment agreements, and the misappropriation of DIRTT's confidential and proprietary information in violation of numerous Canadian and U.S. state, and federal laws pertaining to the protection of DIRTT's trade secrets and proprietary information and the prevention of false advertising and deceptive trade practices.

As of December 31, 2022, the Company's litigation against Falkbuilt, Messrs. Smed and Loberg, and their associates was comprised of four main lawsuits: (i) an action in the Alberta Court of Queen's Bench instituted on May 9, 2019 against Falkbuilt, Messrs. Smed and Loberg, and several other former DIRTT employees alleging breaches of restrictive covenants, fiduciary duties, and duties of loyalty, fidelity and confidentiality, and the misappropriation of DIRTT's confidential information (the "Canadian Non-Compete Case"); (ii) an action in the U.S. District Court for the Northern District of Utah instituted on December 11, 2019 against Falkbuilt, Smed, and other individual and corporate defendants alleging misappropriation of DIRTT's confidential information, trade secrets, business intelligence and customer information (the "Utah Misappropriation Case"); and (iii) an action in the U.S. District Court for the Northern District of Texas instituted on June 24, 2021 alleging that Falkbuilt has unlawfully used DIRTT's confidential information in the United States and intentionally caused confusion in the United States in an attempt to steal customers, opportunities, and business intelligence, with the aim of establishing a competing business in the United States market (the "Texas Unfair Competition Case"). DIRTT intends to pursue the cases vigorously.

Falkbuilt also filed a lawsuit against the Company on November 5, 2019 in the Court of Queen's Bench of Alberta, alleging that DIRTT has misappropriated and misused their alleged proprietary information in furtherance of DIRTT's product development. Falkbuilt seeks monetary relief and an interim, interlocutory and permanent injunction of DIRTT's alleged use of the alleged proprietary information. The Company believes that the suit is without merit and filed an application for summary judgment to dismiss Falkbuilt's claim.

No amounts are accrued for the above legal proceedings.

------

**21. PRIVATE PLACEMENT AND RELATED PARTY TRANSACTIONS** 

On November 30, 2022, the Company closed a private placement of 8,667,449 common shares for aggregate gross consideration of $2.8 million (the "Private Placement") with its two largest shareholders, 22 NW Fund, LP ("22NW") and 726 BC LLC and 726 BF LLC (together "726") and all the directors and officers, including 638,996 Common Shares issued at the deemed per share price equal to the Subscription Price, as reimbursement for the costs incurred by 726 in connection with the Company's contested director elections in 2022. In addition, in connection with the Private Placement, the two shareholders, or their principals, have irrevocably committed to backstopping any rights offering occurring by the Company in the twelve months following the Private Placement in the aggregate amount of $2.0 million.

------

**Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.** 

None.

**Item 9A. Controls and Procedures.** 

**Evaluation of Disclosure Controls and Procedures** 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022. Based upon their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

**Management's Annual Report on Internal Control Over Financial Reporting** 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO framework) to evaluate the effectiveness of internal control over financial reporting. Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.

Based on its evaluation under the framework in Internal Control—Integrated Framework, our management concluded that the Company maintained effective internal control over financial reporting at a reasonable assurance level as of December 31, 2022, based on those criteria.

**Changes in Internal Control Over Financial Reporting** 

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**Item 9B. Other Information.** 

None.

**Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections** 

Not applicable.

------

**PART III** 

**Item 10. Directors, Executive Officers and Corporate Governance.** 

The information required by this Item is incorporated herein by reference to the information that will be contained in our information circular and proxy statement ("proxy statement") related to the 2023 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

**Item 11. Executive Compensation.** 

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.** 

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

**Item 13. Certain Relationships and Related Transactions, and Director Independence.** 

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

**Item 14. Principal Accounting Fees and Services.** 

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Shareholders, which we intend to file with the SEC within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K.

------

**PART IV**

**Item 15. Exhibits, Financial Statement Schedules.** 

(a)The following documents are filed as part of the report:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, as at December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

Notes to the Consolidated Financial Statements

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Financial Statement Schedules

All schedules have been omitted as they are either not required or not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)See Item 15(b)

(b)Exhibits:

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit or Financial Statement Schedule** |
| &nbsp;&nbsp;&nbsp;&nbsp;3.1 | [<u>Restated Articles of Amalgamation of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex31.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;3.2 | [<u>Amended and Restated Bylaw No.1 of DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520150255/d860040dex31.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.1 | [<u>Description of Registrant's Securities (incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K, File No. 001-39061, filed on February 26, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520048711/d845228dex42.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.2 | [<u>Base Indenture, dated January 25, 2021, by and among DIRTT Environmental Solutions Ltd., Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312521022736/d114837dex41.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;4.3 | [<u>Supplemental Indenture, dated January 25, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on January 29, 2021).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312521022736/d114837dex42.htm) |
| 4.4 | [<u>Second Supplemental Indenture, dated December 1, 2021, by and among the Company, Computershare Trust Company of Canada and Computershare Trust Company, National Association as Trustees (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on December 1, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521345525/d126415dex41.htm) |
| 4.5 | [<u>Rights Agreement, dated as of December 7, 2021, by and between DIRTT Environmental Solutions Ltd. and Computershare Trust Company of Canada, as rights agent (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on December 8, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521350460/d223558dex41.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.1+# | [<u>Loan Agreement, dated February 12, 2021, by and among the Royal Bank of Canada, DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on February 19, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521048917/d133882dex101.htm) |
| 10.2+# | [<u>First Amendment and Consent to Loan Agreement, dated November 15, 2021, by and among the Royal Bank of Canada, as lender, and DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc., as borrowers (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on November 23, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521338669/d249743dex101.htm) |

---

------

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit or Financial Statement Schedule** |
| &nbsp;&nbsp;&nbsp;&nbsp;10.3+ | [<u>Amended and Restated Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex102.htm) |
| 10.4+ | [<u>DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on May 22, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520150255/d860040dex101.htm) |
| 10.5+ | [<u>Form of Option Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520151454/d924438dex44.htm) |
| 10.6+ | [<u>Form of Time-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520151454/d924438dex45.htm) |
| 10.7+ | [<u>DIRTT Environmental Solutions Ltd. 2022 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000156459022017897/drtt-ex102_267.htm) |
| 10.8+ | [<u>Form of Performance-Based Restricted Share Unit Award Agreement Under the DIRTT Environmental Solutions Ltd. Long-Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Registrant's Registration Statement on Form S-8, File No. 333-238689, filed on May 26, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520151454/d924438dex46.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.9+ | [<u>Deferred Share Unit Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex104.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.10+ | [<u>DIRTT Environmental Solutions Ltd. Amended and Restated Employee Share Purchase Plan (incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8, File No. 333-234143, filed on October 9, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519265243/d810254dex44.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.11+ | [<u>Executive Employment Agreement, dated September 8, 2018, by and between DIRTT Environmental Solutions Ltd. and Kevin O'Meara (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex107.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.12+ | [<u>Amended and Restated Executive Employment Agreement, dated July 4, 2018, by and between DIRTT Environmental Solutions Ltd. and Geoffrey Krause (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex109.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.13+ | [<u>Executive Employment Agreement, dated February 27, 2019, by and between DIRTT Environmental Solutions Ltd. and Jeffrey A. Calkins (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1010.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.14+ | [<u>Executive Employment Agreement, dated January 15, 2019, by and between DIRTT Environmental Solutions Ltd. and Mark Greffen (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1014.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.15+ | [<u>Employment Agreement, dated August 31, 2019, by and between DIRTT Environmental Solutions Ltd. and Jennifer Warawa (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1015.htm) |
| 10.16+ | [<u>Employment Agreement, dated March 13, 2020, by and between DIRTT Environmental Solutions, Inc. and Charles R. Kraus (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q, File No. 001-39061, filed on May 6, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520135017/d913346dex102.htm) |
| 10.17+ | [<u>Executive Employment Agreement, dated May 1, 2019 by and between DIRTT Environmental Solutions Ltd. and Jeffrey Metcalf (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q, File No. 001-39061, filed on July 27, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095017022013232/drtt-ex10_3.htm) |

---

------

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit or Financial Statement Schedule** |
| 10.18+ | [<u>Executive Employment Agreement, dated June 22, 2022 by and between DIRTT Environmental Solutions Ltd. and Benjamin Urban (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q, File No. 001-39061, filed on July 27, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095017022013232/drtt-ex10_4.htm) |
| 10.19+ | [<u>Executive Employment Agreement, dated August 12, 2022, by and between DIRTT Environmental Solutions Inc. and Richard Hunter (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095012322012408/drtt-ex10_2.htm) |
| 10.20+ | [<u>Executive Employment Agreement, dated August 17, 2022, by and between DIRTT Environmental Solutions Inc. and Bradley Little (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095012322012408/drtt-ex10_3.htm) |
| 10.21+ | [<u>Executive Employment Agreement, dated December 24, 2019, by and between DIRTT Environmental Solutions Ltd and Nandini Somayaji (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095012322012408/drtt-ex10_4.htm) |
| 10.22+ | [<u>Executive Employment Agreement, dated October 19, 2022, by and between DIRTT Environmental Solutions Ltd and Jeff Dopheide (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095012322012408/drtt-ex10_5.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.23+ | [<u>Indemnity Agreement, dated August 1, 2020, between the Company and Shauna R. King, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on</u> <u>Form 10-K, File No. 001-39061, filed on February 24, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000156459021008164/drtt-ex1016_650.htm) |
| 10.24+ | [<u>Indemnity Agreement, dated April 26, 2022, between the Company and Douglas A. Edwards, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q File No. 001-39061, filed on May 4, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000156459022017897/drtt-ex103_268.htm) |
| 10.25+ | [<u>Indemnity Agreement, dated June 22, 2022, between DIRTT Environmental Solutions Ltd and Benjamin Urban, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.5 to the Registrant's Form 10-Q, File No. 001-39061, filed on July 27, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095017022013232/drtt-ex10_5.htm) |
| 10.26+ | [<u>Indemnity Agreement, dated August 11, 2022, between DIRTT Environmental Solutions Ltd and Richard Hunter, together with a schedule identifying other substantially identical agreements between the Company and each of the other persons identified on the schedule (incorporated by reference to Exhibit 10.6 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 14, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095012322012408/drtt-ex10_6.htm) |
| 10.27+\* | [<u>Indemnity Agreement, dated November 15, 2022, between DIRTT Environmental Solutions Ltd and Jeff Dopheide</u>](drtt-ex10_27.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.28# | [<u>Industrial Lease, dated September 15, 2012, by and between Piret (7303-30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.23 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1023.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.29# | [<u>Agreement of Lease, dated November 5, 2013, by and between Dundee Industrial Twofer (GP) Inc. and DIRTT Environmental Solutions Ltd., as amended by the Lease Amending Agreement, dated October 21, 2016, by and between Dream Industrial Twofer (GP) Inc. (formerly known as Dundee Industrial Twofer (GP) Inc.) and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.24 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1024.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.30# | [<u>Lease of Industrial Space, dated February 12, 2015, by and between Hoopp Realty Inc./Les Immeubles Hoopp Inc., by its duly authorized agent, Triovest Realty Advisors Inc., and DIRTT Environmental Solutions Ltd., as amended by the Amendment of Lease, dated April 16, 2015, the Lease Modification Agreement, dated October 27, 2015, the Third</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1025.htm) |

---

------

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit or Financial Statement Schedule** |
|  | [<u>Amendment of Lease, dated November 12, 2015, and the Fourth Amendment of Lease, dated January 8, 2016 (incorporated by reference to Exhibit 10.25 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1025.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.31# | [<u>Lease Agreement, dated March 29, 2011, by and between EastGroup Properties, L.P. and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1026.htm) |
| 10.32# | [<u>Lease, dated July 1, 2015, by and between Majik Ventures, L.L.C. and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Lease, dated May 11, 2017, by and between CAM Investment 352 LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1027.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.33# | [<u>Industrial Lease Agreement, dated October 2, 2008, by and between 141 Knowlton Way, LLC and DIRTT Environmental Solutions, Inc., as amended by the First Amendment to Industrial Lease Agreement, dated March 11, 2009, and the Second Amendment to Industrial Lease Agreement, dated August 23, 2018, by and between SH7-Savannah, LLC and DIRTT Environmental Solutions, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant's Registration Statement on Form 10, File No. 001-39061, filed on September 20, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519250806/d664052dex1028.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;10.34# | [<u>Lease Agreement, dated October 7, 2019, by and between DIRTT Environmental Solutions, Inc. and SP Rock Hill Legacy East #1, LLC (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q, File No. 001-39061, filed on November 7, 2019).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312519287469/d810587dex104.htm) |
| 10.35# | [<u>Second Amendment to Lease made as of the 6th day of July, 2020, by and between SP ROCK HILL LEGACY EAST #1, LLC, an Indiana limited liability company, and DIRTT ENVIRONMENTAL SOLUTIONS, INC., a Colorado corporation (incorporated by reference to Exhibit 10.4 to the Registrant's Form 10-Q, File No. 001-39061, filed on July 29, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520202634/d943814dex104.htm) |
| 10.36# | [<u>Lease Agreement between Tennyson Campus Owner, LP and DIRTT Environmental Solutions, Inc. dated March 4, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q, File No. 001-39061, filed on May 6, 2020).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312520135017/d913346dex101.htm) |
| 10.37# | [<u>Lease Amending Agreement, dated April 6, 2022, by and between Piret (7303 - 30th Street SE) Holdings Inc. and DIRTT Environmental Solutions Ltd (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q, File No. 001-39061, filed on July 27, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000095017022013232/drtt-ex10_2.htm) |
| 10.38 | [<u>Letter Agreement, dated as of January 18, 2022, by and between Todd W. Lillibridge and DIRTT Environmental Solutions Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K, File No. 001-39061, filed on January 19, 2022).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312522012568/d300194dex101.htm) |
| 10.39 | [<u>Letter Agreement, dated January 7, 2021, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada (incorporated by reference to Exhibit 1.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on January 13, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521007795/d56379dex11.htm) |
| 10.40+ | [<u>Indemnification Agreement, by and between DIRTT Environmental Solutions Ltd. and James A. Lynch, dated March 22, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on March 23, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521091146/d151020dex101.htm) |
| 10.41+ | [<u>Indemnification Agreement, by and between DIRTT Environmental Solutions Ltd. and Diana R. Rhoten, dated March 22, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, File No. 001-39061, filed on March 23, 2021).</u>](https://www.sec.gov/Archives/edgar/data/0001340476/000119312521091146/d151020dex102.htm) |
| 10.42 | [<u>Subscription Agreement, dated November 14, 2022, by and between DIRTT Environmental Solutions Ltd. and 22NW Fund, LP, together with a schedule identifying substantially identical agreements between DIRTT Environmental Solutions Ltd. and each shareholder and U.S. director and executive officer listed on the schedule and identifying the</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312522288017/d606517dex101.htm) |

---

------

---

| | |
|:---|:---|
| **Exhibit**<br>**No.** | **Exhibit or Financial Statement Schedule** |
|  | [<u>material differences between each of those agreements and the filed Subscription Agreement (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K, File No. 001-39061, filed on November 18, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312522288017/d606517dex101.htm) |
| 10.43 | [<u>Subscription Agreement, dated November 14, 2022, by and between DIRTT Environmental Solutions Ltd. and Mark Greffen, together with a together with a schedule identifying substantially identical agreements between DIRTT Environmental Solutions Ltd. and each shareholder and Canadian executive officer listed on the schedule and identifying the material differences between each of those agreements and the filed Subscription Agreement (incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K, File No. 001-39061, filed on November 18, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312522288017/d606517dex102.htm) |
| 10.44 | [<u>Release, dated November 30, 2022, by and among DIRTT Environmental Solutions Ltd., 726 BC LLC and 726 BF LLC ((incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K, File No. 001-39061, filed on November 30, 2022).</u>](https://www.sec.gov/Archives/edgar/data/1340476/000119312522295517/d393218dex101.htm) |
| 10.45\* | [<u>Second Amendment to Loan Agreement, dated February 9, 2023, by and among DIRTT Environmental Solutions Ltd., DIRTT Environmental Solutions, Inc. and Royal Bank of Canada.</u>](drtt-ex10_45.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.1\* | [<u>Subsidiaries of DIRTT Environmental Solutions Ltd.</u>](drtt-ex21_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.1\* | [<u>Consent of PricewaterhouseCoopers, L.L.P., independent registered public accounting firm.</u>](drtt-ex23_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31.1\* | [<u>Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</u>](drtt-ex31_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31.2\* | [<u>Certification of the Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.</u>](drtt-ex31_2.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32.1\*\* | [<u>Certification of the Principal Executive Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</u>](drtt-ex32_1.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32.2\*\* | [<u>Certification of the Principal Financial Officer required by 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</u>](drtt-ex32_2.htm) |
| &nbsp;&nbsp;101.INS\* | Inline XBRL Instance Document |
| &nbsp;&nbsp;101.SCH\* | Inline XBRL Taxonomy Extension Schema Document |
| &nbsp;&nbsp;101.CAL\* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| &nbsp;&nbsp;101.DEF\* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| &nbsp;&nbsp;101.LAB\* | Inline XBRL Taxonomy Extension Label Linkbase Document |
| &nbsp;&nbsp;101.PRE\* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| &nbsp;&nbsp;104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |

---

------

\* Filed herewith.

\*\* Furnished herewith.

+ Compensatory plan or agreement.

# Information in this exhibit identified by brackets is confidential and has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information that the Company customarily treats as private or confidential. An unredacted copy of this exhibit will be furnished to the Securities and Exchange Commission on a supplemental basis upon request.

------

**Item 16. Form 10-K Summary** 

None.

------

**SIGNATURES** 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | DIRTT ENVIRONMENTAL SOLUTIONS LTD. | DIRTT ENVIRONMENTAL SOLUTIONS LTD. |
| Date: February 22, 2023 | By: | /s/ Benjamin Urban  |
|  |  | Name: Benjamin Urban  |
|  |  | Title: Chief Executive Officer |

---

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | &nbsp;&nbsp;&nbsp;**Title** | &nbsp;&nbsp;&nbsp;**Date** |
| /s/ Benjamin Urban <br>Benjamin Urban | Chief Executive Officer and Director<br>(Principal Executive Officer) | February 22, 2023 |
| /s/ Bradley S. Little<br>Bradley S. Little | Chief Financial Officer<br>(Principal Financial Officer and Principal Accounting Officer) | February 22, 2023 |
| /s/ Ken Sanders<br>Ken Sanders | Director | February 22, 2023 |
| /s/ Douglas Edwards<br>Douglas Edwards | Director | February 22, 2023 |
| /s/ Aron English<br>Aron English | Director | February 22, 2023 |
| /s/ Cory Mitchell<br>Cory Mitchell | Director | February 22, 2023 |
| /s/ Shaun Noll<br>Shaun Noll | Director | February 22, 2023 |
| /s/ Scott Ryan<br>Scott Ryan | Director | February 22, 2023 |

---

------

## Ex-10

**Exhibit 10-27**

**INDEMNITY AGREEMENT**

**THIS INDEMNITY AGREEMENT** is made as of this 15<sup>th</sup> day of November, 2022

**BETWEEN:**

**DIRTT ENVIRONMENTAL SOLUTIONS LTD.**, a corporation

governed by the laws of the Province of Alberta (the "**Corporation**")

-and-

**Jeff Dopheide**, (the "**Indemnified Party**")

**RECITALS:**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.The Indemnified Party serves as a director and/or officer of the Corporation or the Indemnified Party is a former director or officer of the Corporation or acts or has acted at the Corporation's request as a director, officer or similar capacity of any subsidiary or affiliate of the Corporation or any entity of which the Corporation is or was a shareholder, partner, member or creditor (each an "**Entity**");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.The Corporation considers it desirable and in the best interests of the Corporation to enter into this Agreement to set out the circumstances and manner in which the Indemnified Party may be indemnified in respect of certain liabilities and expenses which the Indemnified Party may incur as a result of acting or having acted as a director or officer of the Corporation or, at the Corporation's request, as a director, officer or similar capacity of an Entity; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.The by-laws of the Corporation contemplate that the Indemnified Party may be indemnified in certain circumstances.

**NOW THEREFORE, IN CONSIDERATION OF** the promises and mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and the Indemnified Party acting as a director or officer of the Corporation or, at the Corporation's request, as a director, officer or similar capacity of an Entity, the Corporation and the Indemnified Party do hereby covenant and agree as follows:

**ARTICLE 1**

**DEFINITIONS AND PRINCIPLES OF INTERPRETATION**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.1** **Definitions**

Whenever used in this Agreement, the following words and terms shall have the meanings set out below:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)"**Act**" means the Business Corporations Act (Alberta) as of the date hereof, provided that if the Act is amended after the date hereof in a manner which permits the Corporation to provide broader rights of indemnification than are permitted on the date hereof, this Agreement shall be construed so as to give effect to such broader rights;

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)"**Agreement**" means this indemnity agreement and all amendments or restatements as permitted under this Agreement, and references to "**Article**" or "**Section**" mean the specified Article or Section of this Agreement, and "**paragraph**" means the specified paragraph of this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)"**Claims**" means any claim, demand, suit, action, cause of action, proceeding, inquiry, arbitration, mediation, alternative dispute resolution mechanism, hearing, discovery or investigation of whatever nature, whether anticipated, threatened, pending, commenced, continuing or completed of whatever kind including any civil, criminal, administrative, arbitrative, regulatory, investigative (formal or informal) or other claim of any nature whatsoever; any appeal in or related to any such claim, demand, suit, action, cause of action, proceeding, inquiry, arbitration, mediation, alternative dispute resolution mechanism, hearing, discovery or investigation; and any inquiry or investigation (including discovery) whether conducted by or in the right of the Corporation or any other person that the Indemnified Party in good faith believes could lead to any such claim, demand, suit, action, cause of action, proceeding, inquiry, arbitration, mediation, alternative dispute resolution mechanism, hearing, discovery or investigation or appeal thereof;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)"**Court**" means the Court of Queen's Bench of Alberta (Judicial District of Calgary), including any appeal courts arising therefrom;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)"**ERISA**" means the United States Employee Retirement Income Security Act of 1974, as amended;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)"**Exchange Act**" means the United States Securities Exchange Act of 1934, as amended;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)"**Expenses**" means all legal fees and disbursements, retainers, accountant's fees and disbursements, private investigator fees and disbursements, other professionals' fees and disbursements, court costs, transcript costs, fees and expenses of experts, witness fees and expenses, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, penalties, and all other disbursements, costs or expenses of the types customarily incurred in connection with prosecuting, defending (including affirmative defences and counterclaims), preparing to prosecute or defend, investigating, being or preparing to be a witness in, or participating in or preparing to participate in a Claim and all interest or finance charges attributable to any thereof. Without limiting the foregoing, "Expenses" also shall include Expenses incurred in connection with any appeal resulting from any Claim, including the principal, premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Should any payments by the Corporation under this Agreement be determined to be subject to any national, provincial, federal, state or local income or excise tax, "Expenses" shall also include such amounts as are necessary to place the Indemnified Party in the same after-tax position (after giving effect to all applicable taxes) as the Indemnified Party would have been in had no such tax been determined to apply to such payments. Also, in this Agreement "witness" includes responding (or objecting) to a discovery or similar request, whether in writing or in an oral deposition, in any Claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)"**Losses**" means any and all amounts related to all costs, charges and Expenses reasonably incurred by the Indemnified Party, which shall include all losses, damages (including

------

incidental and consequential damages), fees (including any legal, professional or advisory fees, retainers, charges or disbursements and including costs of services of any experts), claims, awards, statutory obligations, amounts paid to settle or dispose of any Claim or satisfy any judgment, fines, penalties or liabilities (including all interest, assessments and other charges paid or payable in connection with or in respect of such losses, damages, fees, claims, awards, statutory obligations, amounts paid to settle or dispose of any Claim or satisfy any judgment, fines, penalties or liabilities), without limitation, and whether incurred alone or jointly with others, including any amounts which the Indemnified Party may reasonably suffer, sustain, incur or be required to pay in respect of the investigation, defence, settlement or appeal of or preparation for any Claim or with any action to establish a right to indemnification under this Agreement, and for greater certainty, includes all Taxes, interest, penalties and related outlays of the Indemnified Party arising from any indemnification of the Indemnified Party by the Corporation pursuant to this Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)"**Parties**" means the Corporation and the Indemnified Party collectively and "**Party**"

means any one of them;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)"**Policy**" means the directors' and officers' errors and omissions insurance policy of the Corporation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)"**Taxes**" includes any assessment, reassessment, claim or other amount for taxes, charges, duties, levies, imposts, ERISA excise taxes or penalties, or similar amounts, including any interest and penalties in respect thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.2** **Certain Rules of Interpretation**

In this Agreement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)**Governing Law** – This Agreement is a contract made under and shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable in the Province of Alberta. The Parties hereby irrevocably submit and attorn to the exclusive jurisdiction of the Court with respect to all matters arising out of or relating to this Agreement and all matters, agreements or documents contemplated by this Agreement. The Parties hereby waive any objections they may have to the venue being in such Court, including any claim that any such venue is in an inconvenient forum. For greater certainty, all references to "applicable law" in this Agreement shall refer to the laws of the Province of Alberta and the federal laws of Canada applicable in the Province of Alberta.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)**Headings** – Headings of Articles and Sections are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)**Number and Inclusion** – Unless the context otherwise requires, words importing the singular include the plural and vice versa. Whenever the words "include," "includes" or "including" are used in this Agreement, they are deemed to be followed by the words "without limitation."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)**Severability –** If, in any jurisdiction, any provision of this Agreement or its application to any Party or circumstance is restricted, prohibited or unenforceable, such provision shall,

------

as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Agreement and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other Parties or circumstances.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)**Entire Agreement** – This Agreement constitutes the entire agreement between the Parties and sets out all the covenants, promises, warranties, representations, conditions, understandings and agreements between the Parties pertaining to the subject matter ofthis Agreement and supersedes all prior agreements, understandings, negotiations and discussions, oral or written. There are no covenants, promises, warranties, representations, conditions, understandings or other agreements, oral or written, between the Parties in connection with the subject matter of this Agreement except as specifically set forth in this Agreement, including Section 2.8.

**ARTICLE 2 OBLIGATIONS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.1** **Obligations of the Corporation**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)**General Indemnity** – The Corporation will, to the fullest extent permitted by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, including to the extent permitted under the Act, exonerate, indemnify and hold the Indemnified Party and the Indemnified Party's respective heirs, executors, administrators and other legal representatives of the Indemnified Party (each of which is included in any reference hereinafter made to the Indemnified Party) harmless from and against, and will pay to the Indemnified Party, any and all Losses which the Indemnified Party may suffer, sustain, incur or be required to pay in respect of any Claim to which a director or officer is made a party by reason of being a director or officer of the Corporation or director, officer or in similar capacity of an Entity at the Corporation's request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)**Conditions** – The indemnity provided for in Section 2.1(a) will only be available if the Indemnified Party:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)acted honestly and in good faith with a view to the best interest of the Corporation or as the case may be, to the best interest of an Entity for which the Indemnified Party acted as a director, officer or in a similar capacity at the Corporation's request; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing the Indemnified Party's conduct was lawful.

The Indemnified Party shall be presumed to have fulfilled the foregoing conditions unless it is determined by the Court that the Indemnified Party has not (and the burden of proof shall be on the Corporation to rebut such presumption).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)**Derivative Claims** – The Corporation shall to the fullest extent permitted by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, provided the Indemnified Party fulfills the conditions in Section 2.1(b), with the approval of the Court if such approval is required exonerate, indemnify and hold the

------

Indemnified Party harmless, and advance moneys under Section 2.1(k) to the Indemnified Party, in respect of a Claim by or on behalf of the Corporation or other entity to procure a judgment in the Corporation's favour to which the Indemnified Party is made a party by reason of being or having been a director or officer of the Corporation or director, officer or in similar capacity of an Entity at the Corporation's request. The Corporation will advance or reimburse, as applicable, all Losses incurred by the Indemnified Party in connection with the Indemnified Party's participation in such Claim as provided in this Section 2.1(c). The Corporation shall pay to the Indemnified Party, if applicable, a reasonable per diem amount for time spent in connection with a Claim under this Section 2.1(c) as provided in Section 2.1(l).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)**Indemnity as of Right** – Notwithstanding anything in this Agreement, provided the Indemnified Party fulfills the conditions in Section 2.1(b), the Corporation shall be required to indemnify the Indemnified Party in respect of all Losses incurred by the Indemnified Party in respect of any Claim to which the Indemnified Party is made a party by reason of being or having been a director or officer of the Corporation or director, officer or in similar capacity of an Entity at the Corporation's request, if after the final disposition of such Claim, the Indemnified Party has not been reimbursed for those Losses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)**Incidental and Additional Expenses** – The Corporation shall to the fullest extent permitted by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit pay or reimburse the Indemnified Party for (i) the Indemnified Party's reasonable and necessary travel, lodging or accommodation costs, charges or expenses paid or incurred by or on behalf of the Indemnified Party in connection with a Claim where such Claim is subject to indemnification hereunder; (ii) the Indemnified Party's reasonable fees and Expenses incurred in connection with efforts to recover under any directors and officers liability insurance policies maintained by the Corporation; and (iii) the Indemnified Party's reasonable fees and Expenses incurred in connection with enforcement of, or claims for breaches of, any provision of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)**Witness Expenses** – The Corporation shall to the fullest extent permitted by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit pay or reimburse the Indemnified Party for the reasonable and necessary Expenses incurred by Indemnified Party, including a reasonable per diem amount as provided in Section 2.1(l), in connection with time spent in the investigation or as a witness for the Corporation or an Entity with respect to any Claim, by reason of the Indemnified Party being a director or officer of the Corporation or director, officer or in similar capacity of an Entity at the Corporation's request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)**Specific Indemnity for Statutory Obligations** – Without limiting the generality of the preceding Sections 2.1(a) through 2.1(f) of this Agreement, the Corporation agrees, to the fullest extent permitted by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, to exonerate, indemnify and hold the Indemnified Party harmless from and against any and all Losses arising by operation of statute and incurred by or imposed upon the Indemnified Party in relation to the affairs of the Corporation in the Indemnified Party's capacity as a director or officer thereof, including all statutory obligations to creditors, employees, suppliers, contractors, subcontractors, and any government or any agency or division of any government,

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whether federal, provincial, state, regional or municipal, or which in any way involve the business or affairs of the Corporation or an Entity for which the Indemnified Party acted as a director, officer or similar capacity at the Corporation's request, provided that the indemnity provided for in this Section 2.1(g) will be available unless it is determined by the Court that the Indemnified Party has not fulfilled the conditions in Section 2.1(b) above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)**Change of Law** – In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of an Alberta corporation to indemnify a director or officer, it is the intent of the parties hereto that the Indemnified Party shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change after that date of this Agreement in any applicable law, statute or rule which narrows the rights of an Alberta corporation to indemnify a director or officer, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' right and obligations hereunder except as set forth in Section 2.9.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)**Partial Indemnification** – If the Indemnified Party is determined by the Court to be entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Losses incurred in respect of any Claim but not for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnified Party for the portion thereof to which the Indemnified Party is determined by the Court to be so entitled.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)**Indemnification for Losses of an Indemnified Party Who Is Wholly or Partly Successful** – To the extent the Indemnified Party is a party to (or a participant in) a Claim and is successful, on the merits or otherwise, in the defence of any Claim or any issue or matter therein, the Corporation shall, to the fullest extent permitted by applicable law, exonerate, indemnify, and hold the Indemnified Party harmless against all Losses incurred by the Indemnified Party therewith. If the Indemnified Party is not wholly successful in such Claim but is successful, on the merits or otherwise, as to one or more but less than all the issues or matters in such Claim, the Corporation shall, to the fullest extent permitted by applicable law, exonerate, indemnify, and hold the Indemnified Party harmless against all Losses incurred by the Indemnified Party in connection with each successfully resolved issue or matter. For purposes of this Section 2.1(j), without limitation, the termination of any issue or matter in a Claim by dismissal, with or without prejudice, shall be deemed to be a successful result as to such issue or matter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)**Advance of Expenses** – The Corporation shall, at the request of the Indemnified Party, to the maximum extent permitted under the Act or otherwise by law on the date hereof and to such greater extent as applicable law may hereafter from time to time permit, promptly: (i) reimburse the Indemnified Party for all Losses incurred by the Indemnified Party in relation to a Claim claimed by the Indemnified Party to be subject to indemnification hereunder; and (ii) pay reasonable and customary advance payments and costs and expenses to service providers of the Indemnified Party; in each case, prior to any settlement or resolution of such Claim to enable the Indemnified Party to properly investigate, defend or appeal such Claim. The Corporation shall pay such advances within ten (10) days after the receipt by the Corporation of a written request from the Indemnified Party requesting such payment or payments from time to time, whether prior to or after final disposition of a Claim. If it is ultimately determined in a final judgment

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of a court of competent jurisdiction or final arbitration award of an applicable arbitration proceeding that has become non-appealable that the Indemnified Party did not fulfill the conditions in Section 2.1(b) or that the Indemnified Party was not entitled to be fully so indemnified, such advance, or the appropriate portion thereof, upon written notice of such determination being given by the Corporation to the Indemnified Party detailing the basis for such determination, shall be repayable on demand without interest. The Indemnified Party shall not be required to provide collateral or otherwise secure the Indemnified Party's agreement to repay described in the prior sentence. If and to the extent the Indemnified Party makes any such repayment to the Corporation, the obligation of the Corporation to indemnify the Indemnified Party will continue in accordance with the terms of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)**Per Diem Charge** – In addition to any other amount payable to the Indemnified Party under this Agreement, the Indemnified Party shall be entitled to receive from the Corporation a per diem payment (the "**Per Diem Charge**") for time spent with respect to any Claim for which the Indemnified Party is otherwise entitled to indemnification pursuant to any one of the foregoing provisions of Section 2.1 of this Agreement. For directors, the Per Diem Charge shall be an amount equal to US$350 per hour. For officers, the Per Diem Charge shall be zero if the Indemnified Party is still employed on a full time basis by the Corporation at the time the Per Diem Charge is payable or has been terminated for cause by the Corporation, and the Per Diem Charge shall be in an amount equal to US$350 per hour if the Indemnified Party is not employed on a full time basis by the Corporation at the time the Per Diem Charge is payable other than as a result of termination for cause.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)**Taxes** – For greater certainty, a Claim subject to indemnification pursuant to Article 2 of this Agreement shall include any Taxes which the Indemnified Party may be subject to or suffer or incur as a result of, in respect of, arising out of or referable to any indemnification of the Indemnified Party by the Corporation pursuant to this Agreement; provided, however, that any amount required to be paid with respect to such Taxes shall be payable by the Corporation only upon the Indemnified Party remitting or being required to remit any amount payable on account of such Taxes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)**Right to Access –** The Indemnified Party (and its legal representatives) is entitled to have access to and inspect the Corporation's records and documents which are under its control and which may be reasonably necessary in order to defend the Indemnified Party against a Claim which has been or which the Indemnified Party reasonably anticipates may be made against the Indemnified Party, provided that the Indemnified Party (and its legal representatives) maintains all such information in the strictest confidence except to the extent necessary for the defence of the Indemnified Party. The Corporation shall provide the Indemnified Party (and its legal representatives) with access to the relevant documents and records during the regular business hours of the Corporation as soon as practicable following a request for such access by or on behalf of the Indemnified Party. The Indemnified Party (and its legal representatives) shall be entitled to make and receive copies (including electronic copies) of any of such records and documents of the Corporation at the cost of the Corporation and such copies shall be provided as soon as practicable following a request therefor by or on behalf of the Indemnified Party. If the Indemnified Party is the subject of or is implicated in any way during the proceeding of any Claim, the Corporation will share with the Indemnified Party (and its legal

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representatives) any information that it has turned over to any third parties in connection therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)**Enforcement –** The Indemnified Party's right to indemnification and other rights under this Agreement shall be specifically enforceable by the Indemnified Party in a "court" (as defined in the Act) and shall be enforceable notwithstanding any adverse determination by or on behalf of the Corporation's board of directors and no such determination shall create a presumption that the Indemnified Party is not entitled to be indemnified hereunder. In any such action, the Corporation shall have the burden of proving that indemnification is not required or permitted under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p)**Court Approvals –** If the payment of an indemnity under any provision of this Agreement requires any court or other approvals, the Corporation shall make the application or seek such other required approvals and use reasonable best efforts to obtain such order or other required approvals, including paying the costs of such application or seeking such other required approvals and paying the expenses of the Indemnified Party, to the extent permitted by applicable law, in connection with any such order or approval process. If the Corporation fails to do so, the Indemnified Party may apply to the Court or other applicable court, agency or body for an order or seek such other required approvals approving the indemnity of the Indemnified Party pursuant to this Agreement, and the Corporation shall pay the expenses of the Indemnified Party, to the extent permitted by applicable law, in connection with any such order or approval process.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.2** **Notice of Proceedings**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The Indemnified Party shall give notice in writing to the Corporation as soon as practicable upon being served with any statement of claim, writ, notice of motion, indictment, subpoena, investigation order or other document commencing, threatening or continuing any Claim which may result in a claim for indemnification under this Agreement, and the Corporation agrees to give the Indemnified Party notice in writing as soon as practicable upon it being served with any statement of claim, writ, notice of motion, indictment, subpoena, investigation order or other document commencing, threatening or continuing any Claim which may result in a claim for indemnification under this Agreement. Such notice shall include a description of the Claim or threatened Claim, a summary of the facts giving rise to the Claim or threatened Claim and, if possible, an estimate of any potential liability arising under the Claim or threatened Claim. Failure by either party to so notify the other of any Claim shall not relieve the Corporation from liability under this Agreement except to the extent that the failure materially prejudices the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)If, at the time the Corporation gives the Indemnified Party notice in connection with Section 2.2(a), a Policy is in effect with respect to the Indemnified Party, the Corporation shall give prompt notice of the applicable Claim to its insurers in accordance with the procedures set forth in such Policy. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay all amounts payable as a result of such Claim in accordance with the terms of such Policy.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.3** **Subrogation**

Promptly after receiving written notice from the Indemnified Party of any Claim or threatened Claim (other than a Claim by or on behalf of the Corporation to procure a judgment in its favour against the Indemnified Party), the Corporation may by notice in writing to the Indemnified Party, and upon the written request of the Indemnified Party the Corporation shall, in a timely manner assume conduct of the defence thereof and retain counsel on behalf of the Indemnified Party who is reasonably satisfactory to the Indemnified Party, to represent the Indemnified Party in respect of the Claim. On delivery of such notice by the Corporation, other than pursuant to Section 2.4, the Corporation shall not be liable to the Indemnified Party under this Agreement for any fees and disbursements of counsel the Indemnified Party may subsequently incur with respect to the same matter. If the Corporation assumes conduct of the defence on behalf of the Indemnified Party, the Indemnified Party hereby consents to the conduct thereof and of any action taken by the Corporation, in good faith, in connection therewith, and the Indemnified Party shall fully cooperate in such defence including the provision of documents, attending examinations for discovery, making affidavits, meeting with counsel, testifying and divulging to the Corporation all information reasonably required to defend or prosecute the Claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.4** **Separate Counsel**

In connection with any Claim or other matter for which the Indemnified Party may be entitled to indemnity under this Agreement, the Indemnified Party shall have the right to employ separate counsel and consultants of the Indemnified Party's choosing and to participate in and approve any settlement by the Corporation of any Claim involving or affecting in any manner whatsoever the Indemnified Party, and provided that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the employment of such counsel and consultants of the Indemnified Party's choosing have been previously approved by the Corporation, acting reasonably; or (b) the Indemnified Party has reasonably concluded that there may be a conflict of interest between the Corporation and the Indemnified Party in defending such Claim; then all fees, expenses and disbursements of such counsel and consultants shall be at the Corporation's expense and shall be paid within ten (10) days of invoices being submitted to the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.5** **Presumption of Indemnification**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)In making a determination with respect to entitlement to indemnification hereunder, the Corporation shall, to the fullest extent not prohibited by law, presume that the Indemnified Party is entitled to indemnification under this Agreement, and the Corporation shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by the Court of any determination contrary to that presumption. Neither the failure of the Corporation to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because the Indemnified Party has met the applicable standard of conduct, nor an actual determination by the Corporation that the Indemnified Party has not met such applicable standard of conduct, shall be a defence to the action or create a presumption that the Indemnified Party has not met the applicable standard of conduct.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)If the Corporation shall not have made a determination with respect to entitlement to indemnification within sixty (60) days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and the Indemnified Party

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shall be entitled to such indemnification, absent a prohibition of such indemnification under applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The knowledge or actions, or failure to act, of any director, officer, agent or employee of the Entity shall not be imputed to the Indemnified Party for purposes of determining the right to indemnification under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.6** **Presumption of Good Faith**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)For the purposes of any determination of good faith under this Agreement, the Indemnified Party shall be deemed to have acted in good faith if the Indemnified Party's action is based on the records or books of account of the Corporation or an Entity, including applicable financial statements, or on information supplied to the Indemnified Party by officers of the Corporation or an Entity (other than the Indemnified Party) in the course of their duties, or on the advice of legal counsel of the Corporation, an Entity, their respective board of directors, counsel selected by any committee of their respective board of directors or on information or records given or reports made to the Corporation or an Entity by an independent certified public accountant or by an appraiser, investment banker, compensation consultant or other expert selected with reasonable care by the Corporation, an Entity, their respective board of directors or any committee of their respective board of directors or by any other person as to matters the Indemnified Party reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. The provisions of this Section 2.6 shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnified Party may be deemed to have fulfilled the conditions in Section 2.1(b) or met any other applicable standard of conduct.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Unless the Court or a court of competent jurisdiction otherwise has held or decided that the Indemnified Party is not entitled to be fully or partially indemnified under this Agreement, the termination of any civil, criminal or administrative action or proceedings by judgement, order, settlement, conviction or similar or other result or upon a plea of "no contest" or the equivalent will not, of itself: (i) create a presumption for the purposes of this Agreement that the Indemnified Party did not act honestly and in good faith with a view to the best interests of the Corporation or Entity; (ii) in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, that the Indemnified Party did not have reasonable grounds for believing that the Indemnified Party's conduct was lawful; or (iii) that the Indemnified Party is not entitled to indemnity under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.7** **Settlement of a Claim**

For greater certainty, no admission of liability and no settlement of any Claim in a manner adverse to the Indemnified Party shall be made without the consent of the Indemnified Party, acting reasonably. No admission of liability shall be made by the Indemnified Party without the consent of the Corporation and the Corporation shall not be liable for any settlement of any Claim made without its consent, acting reasonably.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.8** **Other Rights and Remedies Unaffected**

The indemnification and advance payment provided in this Agreement shall not derogate from or exclude any other rights to which the Indemnified Party may be entitled under any provision of the Act or otherwise at law, the articles or by-laws of the Corporation, any applicable policy of insurance, guarantee or third-party indemnity, any vote of shareholders of the Corporation, or otherwise, both as to matters arising out of the Indemnified Party's capacity as a director or officer of the Corporation or as to matters arising out of any other capacity in which the Indemnified Party may act for or on behalf of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.9** **Exceptions**

Any other provision herein to the contrary notwithstanding, the Corporation shall not be obligated pursuant to the terms of this Agreement:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)**Claims Initiated by the Indemnified Party** – To indemnify or advance expenses to the Indemnified Party with respect to any proceeding or Claim initiated or brought voluntarily by the Indemnified Party and not by way of defence, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any statute, the articles or by-laws of the Corporation or otherwise but such indemnification or advancement of expenses may be provided by the Corporation in specific cases if the Corporation's board of directors has approved the initiation or bringing of such suit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)**Frivolous Proceedings** – To indemnify the Indemnified Party for any expenses incurred by the Indemnified Party with respect to any proceeding instituted by the Indemnified Party to enforce or interpret this Agreement, if the Court or a court of competent jurisdiction determines that each of the material assertions made by the Indemnified Party in such proceedings were frivolous.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)**Insured Claims** – To make any payment in connection with any Claim made against the Indemnified Party to the extent the Indemnified Party has otherwise received payment (under any insurance policy, the articles or by-laws of the Corporation, contract or otherwise) of the amounts otherwise indemnifiable hereunder. If the Corporation makes any indemnification payment to the Indemnified Party in connection with any particular expense indemnified hereunder and the Indemnified Party has already received or thereafter receives, and is entitled to retain, duplicate payments in reimbursement of the same particular expense, then the Indemnified Party shall reimburse the Corporation in an amount equal to the lesser of: (i) the amount of such duplicate payment; and (ii) the full amount of such indemnification payment made by the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)**Claims for Unlawful Profits** – To indemnify the Indemnified Party for the disgorgement of profits arising from the purchase and sale by the Indemnified Party of securities in violation of Section 16(b) of the Exchange Act (or any successor statute) or any other applicable securities law or Losses incurred by the Indemnified Party for Claims in connection with such payment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)**Other Indemnification** – To indemnify the Indemnified Party for expenses for which the Indemnified Party is indemnified by the Corporation otherwise than pursuant to this Agreement.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)**Not Lawful** – To indemnify the Indemnified Party if (and to the extent that) a final decision by the Court, a court of competent jurisdiction, or an arbitration body having jurisdiction in the matter shall determine that such indemnification is not lawful.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.10** **Articles and By-Laws**

The Corporation agrees that the articles and by-laws of the Corporation in effect on the date hereof shall not be amended to reduce, limit, hinder or delay: (a) the rights of the Indemnified Party granted hereunder; or (b) the ability of the Corporation to indemnify the Indemnified Party as required hereunder. The Corporation further agrees that it shall exercise the powers granted to it under the articles and by- laws of the Corporation and applicable law to indemnify the Indemnified Party to the fullest extent possible as required by this Agreement.

**ARTICLE 3 INSURANCE**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.1** **The Policy**

The Corporation shall purchase and maintain, or cause to be purchased and maintained, while the Indemnified Party remains a director or officer of the Corporation or director, officer or a similar capacity of an Entity at the Corporation's request, and in accordance with Section 3.6, for a period of six (6) years after the Indemnified Party ceases to be a director or officer of the Corporation, a Policy including Side "A" difference in conditions coverage, for the benefit of the Indemnified Party containing such customary terms and conditions and in such amounts as are available to the Corporation on reasonable commercial terms, having regard to the nature and size of the business and operations of the Corporation and its subsidiaries from time to time. In all such Policies, the Indemnified Party, by reference to the Indemnified Party's position or otherwise, shall be named as an insured. The Corporation shall thereafter take all necessary or desirable action to cause its insurer to pay, on behalf of the Indemnified Party, all amounts payable as a result of such Claims in accordance with the terms of such policies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.2** **Variation of Policy**

So long as the Indemnified Party is a director or officer of the Corporation or director, officer or similar capacity of an Entity at the Corporation's request, and, in accordance with Section 3.6, for a period of six

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) years thereafter, the Corporation shall not seek to amend or discontinue the Policy or allow the Policy to lapse.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.3** **Run-Off Coverage**

If the Policy is discontinued for any reason, the Corporation shall purchase, maintain and administer, or cause to be purchased, maintained and administered for a period of six (6) years after such discontinuance, insurance for the benefit of the Indemnified Party (the "**Run-Off Coverage**"), on such terms as the Corporation then maintains in existence for its directors and officers, to the extent permitted by law and provided such Run-Off Coverage is available on commercially acceptable terms and premiums (as determined by the Corporation's board of directors acting reasonably). The Run-Off Coverage shall provide coverage only in respect of events occurring prior to the discontinuance of the Policy.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.4** **Insurable Events**

If an insurable event occurs, the Corporation shall indemnify the Indemnified Party as agreed hereto regardless of whether the Corporation receives the insurance proceeds. The Indemnified Party is entitled to full indemnification as agreed hereto notwithstanding any deductible amounts or policy limits contained in any such insurance policy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.5** **Exclusion of Indemnity**

Notwithstanding any other provision in this Agreement to the contrary, the Corporation shall not be obligated to indemnify the Indemnified Party under this Agreement for any Losses which have been paid to, by or on behalf of, the Indemnified Party under the Policy or any other applicable policy of insurance maintained by the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.6** **Post Office Directors and Officers Insurance**

Following the Indemnified Party ceasing to be a director or officer of the Corporation or director, officer or similar capacity of an Entity at the Corporation's request, for any reason whatsoever, the Corporation shall continue to purchase and maintain directors' and officers' liability insurance, for the benefit of the Indemnified Party for a minimum of six (6) years, such that the Indemnified Party's insurance coverage is, during that time, the same as any insurance coverage the Corporation purchases and maintains for the benefit of its then current directors and officers, from time to time. Notwithstanding the foregoing, if: (a) liability insurance coverage for former directors and officers is no longer available; or (b) it is no longer industry practice among responsible companies to procure liability insurance for former directors and officers and the cost to the Corporation to do so would be commercially unreasonable (as determined by the board of directors acting reasonably), the Corporation shall be relieved of its obligation to procure liability insurance coverage for former directors and officers; provided that the Corporation procures such level of insurance coverage, if any, as is available for former directors and officers at a commercially reasonable rate and adopts comparable measures to protect its former directors and officers in the circumstances as are adopted by other responsible companies. The onus is on the Corporation to establish that the circumstances described in the previous sentence exist.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.7** **Deductible under Directors and Officers Insurance**

If for any reason whatsoever, any directors' and officers' liability insurer asserts that the Indemnified Party is subject to a deductible under any existing or future Policy purchased and maintained by the Corporation for the benefit of the Indemnified Party, the Corporation shall pay the deductible for and on behalf of the Indemnified Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.8** **Notice**

The Corporation agrees to provide notice of any material changes in the insurance coverage referred to in Article 3 during the period in which the Indemnified Party serves as director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request and for a period of six (6) years thereafter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.9** **Most Favoured Nation**

The Corporation agrees that if the Corporation enters into any indemnity agreement or similar arrangement with any person who is, or becomes, a director or officer of the Corporation or a director, officer or

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similar capacity of an Entity at the Corporation's request, and such agreement or arrangement contains any provision which is more favourable to the other party to such agreement than the provisions of this Agreement are to the Indemnified Party then, and in each such case, the Corporation shall provide written notice of such provision to the Indemnified Party (which shall include a copy of such provision). Upon such notice, unless the Indemnified Party elects otherwise within five (5) days of receipt of such notice, this Agreement shall be deemed to be amended to conform the provisions of this Agreement to such more favourable provision.

**ARTICLE 4 MISCELLANEOUS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.1** **Corporation and Indemnified Party to Cooperate**

The Corporation and the Indemnified Party shall, from time to time, provide such information and cooperate with the other, as the other may reasonably request, in respect of all matters under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.2** **Effective Time**

This Agreement shall be deemed to have effect as and from the first date that the Indemnified Party became a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.3** **Insolvency**

The liability of the Corporation under this Agreement shall not be affected, discharged, impaired, mitigated or released by reason of the discharge or release of the Indemnified Party in any bankruptcy, insolvency, receivership or other similar proceeding of creditors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.4** **Multiple Proceedings**

No action or proceeding brought or instituted under this Agreement and no recovery pursuant thereto shall be a bar or defence to any further action or proceeding which may be brought under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.5** **Termination**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Nothing in this Agreement will prevent the Indemnified Party from resigning as adirector or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request at any time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)The obligations of the Corporation will not terminate or be released upon the Indemnified Party resigning or ceasing to act as a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.6** **Limitation of Actions and Release of Claims**

To the extent permitted by applicable law, no legal action shall be brought and no course of action shall be asserted by or on behalf of the Corporation against the Indemnified Party after the expiration of two years from the date of the Indemnified Party's ceasing to act as a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request and the Corporation agrees that any claim or cause of action of the Corporation shall be extinguished and the Indemnified Party be

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deemed released therefrom absolutely unless asserted by the commencement of legal action in a court of

competent jurisdiction within such two yearperiod.

**ARTICLE 5 CONTRIBUTION**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.1.** **Contribution Payment**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)To the fullest extent permitted by law, whether or not the indemnification provided in Article 2 is available, in respect of any threatened, pending or completed Claim in which the Corporation is jointly liable with the Indemnified Party (or would be if joined in such Claim), the Corporation shall pay, in the first instance, the entire amount of any judgment or settlement of such Claim without requiring the Indemnified Party to contribute to such payment, and the Corporation hereby waives and relinquishes any right of contribution it may have against the Indemnified Party. The Corporation shall not enter into any settlement of any Claim in which the Corporation is jointly liable with the Indemnified Party (or would be if joined in such Claim) unless such settlement provides for a full and final release of all claims asserted against the Indemnified Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Without diminishing or impairing the obligations of the Corporation set forth in the preceding paragraph, if, for any reason, the Indemnified Party shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed Claim in which the Corporation is jointly liable with the Indemnified Party (or would be if joined in such Claim), the Corporation shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by the Indemnified Party in proportion to the relative benefits received by the Corporation and all officers, directors or employees of the Corporation, other than the Indemnified Party, who are jointly liable with the Indemnified Party (or would be if joined in such Claim), on the one hand, and the Indemnified Party, on the other hand, from the transaction or events from which such Claim arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Corporation and all officers, directors or employees of the Corporation other than the Indemnified Party who are jointly liable with the Indemnified Party (or would be if joined in such Claim), on the one hand, and the Indemnified Party, on the other hand, in connection with the transaction or events that resulted in such Expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which applicable law may require to be considered.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The Corporation hereby agrees, to the fullest extent permitted by applicable law, to fully indemnify and hold the Indemnified Party harmless from any claims of contribution which may be brought by officers, directors or employees of the Corporation, other than the Indemnified Party, who may be jointly liable with the Indemnified Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)To the fullest extent permissible under applicable law and without diminishing or impairing the obligations of the Corporation set forth in the preceding paragraphs of this Section 5.1, if the indemnification provided for in this Agreement is unavailable to the Indemnified Party for any reason whatsoever, the Corporation, in lieu of indemnifying the Indemnified Party, shall contribute to the amount incurred by the Indemnified Party, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in

------

settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Claim in order to reflect (i) the relative benefits received by the Corporation and the Indemnified Party as a result of the event(s) and/or transaction(s) giving cause to such Claim; and/or (ii) the relative fault of the Corporation (and its directors, officers, employees and agents) and the Indemnified Party in connection with such event(s) and/or transaction(s).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.2 Relative Fault**

The relative fault of the Indemnified Party, on the one hand, and of the Corporation and any and all other parties (including officers and directors of the Corporation other than the Indemnified Party) who may be at fault with respect to such matter shall be determined (i) by reference to the relative fault of the Indemnified Party as determined by the court or other governmental agency assessing the contribution amounts or (ii) to the extent such court or other governmental agency does not apportion relative fault, by independent counsel agreed to by both the Corporation and the Indemnified Party after giving effect to, among other things, the degree of which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary, the degree to which their conduct is active or passive, the degree of the knowledge, access to information, and opportunity to prevent or correct the subject matter of the Claim and other relevant equitable considerations of each party. The Corporation and the Indemnified Party agree that it would not be just and equitable if contribution pursuant to this Section 5.2 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 5.2.

**ARTICLE 6 GENERAL**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.1.** **Term**

This Agreement shall continue after the Indemnified Party ceases to serve as a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request and shall survive indefinitely.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.2.** **Deeming Provision**

The Indemnified Party shall be deemed to have acted or be acting at the specific request of the Corporation upon the Indemnified Party's being appointed or elected as a director or officer of the Corporation or a director, officer or similar capacity of an Entity at the Corporation's request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.3.** **Assignment**

Neither Party may assign this Agreement or any rights or obligations under this Agreement without the prior written consent of the other Party. This Agreement shall enure to the benefit of and be binding upon the Parties and the heirs, executors and administrators and other legal representatives of the Indemnified Party and the successors and permitted assigns of the Corporation (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation).

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.4.** **Amendments and Waivers**

No supplement, modification, amendment or waiver or termination of this Agreement and, unless otherwise specified, no consent or approval by any Party, shall be binding unless executed in writing by the Party to be bound thereby. For greater certainty, the rights of the Indemnified Party under this Agreement shall not be prejudiced or impaired by permitting or consenting to any assignment in bankruptcy, receivership, insolvency or any other creditor's proceedings of or against the Corporation or by the winding-up or dissolution of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.5.** **Notices**

Any notice, consent or approval required or permitted to be given in connection with this Agreement (in this Section referred to as a "**Notice**") shall be in writing and shall be sufficiently given if delivered (whether in person, by courier service or other personal method of delivery), or if transmitted by facsimile or e-mail:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)in the case of a Notice to the Indemnified Party at: [●]

Facsimile:

e-mail:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)in the case of a Notice to the Corporation at: DIRTT Environmental Solutions Ltd.

Attn: General Counsel 7303 30th Street S.E. Calgary, Alberta T2C 1N6 Facsimile:

e-mail:

Any Notice delivered or transmitted to a Party as provided above shall be deemed to have been given and received on the day it is delivered or transmitted, provided that it is delivered or transmitted on a business day prior to 5:00 p.m. local time in the place of delivery or receipt. However, if the Notice is delivered or transmitted after 5:00 p.m. local time or if such day is not a business day then the Notice shall be deemed to have been given and received on the next business day.

Any Party may, from time to time, change its address for Notice set out in this Section 6.5 by giving Notice to the other Party in accordance with the provisions of this Section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.6.** **Further Assurances**

The Corporation and the Indemnified Party shall, with reasonable diligence, do all such further acts, deeds or things and execute and deliver all such further documents as may be necessary or advisable for the purpose of assuring and conferring on the Indemnified Party the rights hereby created or intended, and of giving effect to and carrying out the intention or facilitating the performance of the terms of this Agreement or to evidence any advance made pursuant to Section 2.1(k).

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.7.** **Independent Legal Advice**

The Indemnified Party acknowledges that the Indemnified Party has been advised to obtain independent legal advice with respect to entering into this Agreement, that it has obtained such independent legal advice or has expressly determined not to seek such advice, and that the Indemnified Party is entering into this Agreement with full knowledge of the contents hereof, of the Indemnified Party's own free will and with full capacity and authority to do so.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6.8.** **Execution and Delivery**

This Agreement may be executed by the Parties in counterparts and may be executed and delivered by facsimile or other form of electronic transmission, and all such counterparts and facsimiles or forms of electronic transmission together shall be deemed to be an original and shall constitute one and the same agreement.

[Signature Page Follows]

------

**IN WITNESS OF WHICH** the Parties have duly executed this Agreement.

---

| |
|:---|
| &nbsp;&nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** |
| &nbsp;&nbsp;&nbsp; <br>Per: <u>/s/ Benjamin Urban</u> |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name: Benjamin Urban |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title: CEO |

---

---

| | |
|:---|:---|
| &nbsp;&nbsp;SIGNED, SEALED AND DELIVERED<br>In the presence of:<br>/s/ Nandini Somayaji /s/ Jeff Dopheide | &nbsp;&nbsp;SIGNED, SEALED AND DELIVERED<br>In the presence of:<br>/s/ Nandini Somayaji /s/ Jeff Dopheide |
| &nbsp;&nbsp;Witness<br>Nandini Somayaji | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jeff Dopheide |

---

------

## Ex-10

**Execution version** 

**Exhibit 10-45**

**<u>SECOND AMENDMENT TO LOAN AGREEMENT</u>**

**DATED** as of February 9, 2023

**AMONG: DIRTT ENVIRONMENTAL SOLUTIONS LTD.**, and **DIRTT ENVIRONMENTAL SOLUTIONS, INC.**, as Borrowers

**AND: ROYAL BANK OF CANADA**, as Lender

**PREAMBLE**

**WHEREAS** the Borrowers and the Lender entered into that certain Loan Agreement dated as of February 12, 2021 (as amended pursuant to a First Amendment and Consent dated November 15, 2021 (the "**First Amendment**"), and as may be further amended, restated, supplemented, revised, replaced or otherwise modified from time to time, the "**Existing Loan Agreement**");

**AND WHEREAS** the Borrowers and the Lender have agreed to reduce the Maximum Amount of the Revolving Credit Facility to $15,000,000 and to extend the Stated Expiry Date of the Loan Agreement by one year to February 12, 2024 and to amend certain other provisions of the Loan Agreement, but, in each case, only to the extent and subject to the limitations set forth in this Amendment (this "**Amendment**" and, together with the Existing Loan Agreement, the "**Loan Agreement**") and without prejudice to the Lender's other rights;

**NOW THEREFORE** for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereby agree as follows:

**ARTICLE I – INTERPRETATION**

1.1 All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

**ARTICLE II – AMENDMENTS TO THE Loan AGREEMENT**

2.1 With effect on the Effective Date (hereinafter defined), the Loan Agreement is amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example: <u>double-underlined text</u>) as set forth in the pages of the Loan Agreement attached hereto as Exhibit A. For the avoidance of doubt, Exhibit A incorporates changes made pursuant to the First Amendment, which changes are not indicated as stricken or added pursuant to this Amendment Agreement.

2.2 Notwithstanding anything to the contrary herein, any Revolving Credit Advances based upon the LIBOR Rate (as defined in the Existing Loan Agreement) existing as of the Effective Date shall continue to the end of the applicable Interest Period for such Revolving Credit Advance and the provisions of the Existing Loan Agreement applicable solely with respect to any existing Revolving Credit Advances based upon the LIBOR Rate that continue past the Effective Date shall continue to apply as such, mutatis mutandis, until the end of the applicable Interest Period for such Revolving Credit Advances, after which such provisions shall have no further force or effect.

CAN_DMS: \142300883\2

------

2.3 As of the Effective Date, Schedules G, 3.2, 3.6, 3.7, 3.12, 3.13, 3.16 and 6.1 are hereby amended and restated in their entirety in the form attached hereto.

**ARTICLE III – CONDITIONS TO EFFECTIVENESS** 

3.1 This Amendment shall become effective upon the Borrowers delivering to the Lender each of the following (such date being referred to herein as the "Effective Date"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) an executed copy of this Amendment by PDF copy transmitted via e-mail or telecopier;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) copies of PPSA, UCC, and as applicable, Register of Personal and Movable Real Rights of Quebec, Bank Act, insolvency, executions, litigation, or other jurisdictional searches, as applicable, or other evidence satisfactory to Lender, listing all effective, registrations, financing statements and recordations which name the Credit Parties (under present name, any previous name or any trade or doing business name) as debtor and together with copies of such other recordings, registrations and financing statements;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) 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 Borrowers and each other Credit Party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) certificate of good standing (or other similar instruments) in respect of each of the Credit Parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) opinions of counsel to each of the Credit Parties (including opinions relating to enforceability, the Lender's security in each relevant jurisdiction and such other matters as the Lender reasonably considers necessary in its discretion) with respect to this Amendment and each Loan Document in form and substance satisfactory to Lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) the Borrowers paying to the Lender an amendment fee equal to $30,000; which fee shall be non-refundable and fully earned and paid upon the execution of this Agreement and which fee may be charged as a Revolving Credit Advance and be added to and form part of a Loan.

**ARTICLE IV – representations and warranties**

4.1 Each Borrower represents and warrants to the Lender that the following statements are true, correct and complete:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Authorization, Validity, and Enforceability of this Amendment.</u> Each Borrower has the corporate power and authority to execute and deliver this Amendment. Each Borrower has taken all necessary corporate action (including, without limitation, obtaining approval of its shareholders if necessary) to authorize the execution and delivery of this Amendment. This Amendment has been duly executed and delivered by the Borrowers and this Amendment constitutes the legal, valid and binding obligations of the Borrowers, enforceable against them in accordance with their respective terms without defence, compensation, setoff or counterclaim. Each Credit Party's execution and delivery of this Amendment does not and will not conflict with, or constitute a violation or breach of, or constitute a default under, or result in the creation or imposition of any lien upon the property of the Borrowers by reason of the terms of (a) any contract, mortgage, hypothec, lien, lease, agreement, indenture, or instrument to which any of the Borrowers is a party or which is binding on any of them, (b) any requirement of law applicable to the Borrowers, or (c) the certificate or articles of incorporation or amalgamation or bylaws of the Borrowers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Governmental Authorization.</u> No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or other person is necessary or required in connection with the execution, delivery or performance by, or enforcement against the Borrowers or

------

any Subsidiaries of this Amendment except for such as have been obtained or made and filings required in order to perfect and render enforceable the Lender's security interests.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Incorporation of Representations and Warranties From Loan Agreement.</u> The representations and warranties contained in the Loan Agreement are and will be true, correct and complete in all material respects on and as of the Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Absence of Default.</u> No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Security.</u> All security delivered to or for the benefit of the Lender pursuant to the Loan Agreement and the other Loan Documents remains in full force and effect and secures all Obligations of the Borrowers under the Loan Agreement and the other Loan Documents to which they are a party.

**ARTICLE V – miscellaneous**

5.1 Each Borrower (i) reaffirms its Obligations under the Loan Agreement and the other Loan Documents to which it is a party, and (ii) agrees that the Loan Agreement and the other Loan Documents to which it is a party remain in full force and effect, except as amended hereby, and are hereby ratified and confirmed.

5.2 The execution, delivery and performance of this Amendment shall not, except as expressly provided for herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Lender under the Loan Agreement or any other document.

5.3 Each Borrower acknowledges and agrees that it has read and is fully informed and satisfied with all the terms and conditions of this Amendment and has had the opportunity to obtain independent legal advice in connection therewith.

5.4 This Amendment shall be governed by, and construed in accordance with, the internal laws of the Province of Alberta and the federal laws of Canada applicable therein without regard to the principles of conflict of laws.

5.5 This Amendment and each other Loan Document may be executed in one or more counterparts (and by different parties hereto in different counterparts), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery by fax or other electronic transmission of an executed counterpart of a signature page to this Amendment and each other Loan Document shall be effective as delivery of an original executed counterpart of this Amendment and such other Loan Document. The words "execution," "execute", "signed," "signature," and words of like import in or related to any document to be signed in connection with this Amendment or any other Loan Document shall be deemed to include electronic signatures, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, as in provided Parts 2 and 3 of the Personal Information Protection and Electronic Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario), the Electronic Transaction Acts (British Columbia), the Electronic Transactions Act (Alberta), or any other similar laws based on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada. The Lender may, in its discretion, require that any such documents and signatures executed electronically or delivered by fax or other electronic transmission be confirmed by a manually-signed original thereof; provided that the failure to request or deliver the same shall not limit the effectiveness of any document or signature executed electronically or delivered by fax or other electronic transmission.

**[The next pages are the signature pages]**

------

**DATED** as of the date first stated above.

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;Lender: | &nbsp;&nbsp;**ROYAL BANK OF CANADA,** <br>by its attorneys, | &nbsp;&nbsp;**ROYAL BANK OF CANADA,** <br>by its attorneys, |
|  | &nbsp;&nbsp;Per: | &nbsp;&nbsp;/s/ Michael Petersen |
|  |  | &nbsp;&nbsp;Name: Michael Petersen |
|  |  | &nbsp;&nbsp;Title: Director, Corporate Client Group - Asset Based Lending |
|  | &nbsp;&nbsp;Per: | &nbsp;&nbsp;/s/ Jordan Falkenberg |
|  |  | &nbsp;&nbsp;Name: Jordan Falkenberg |
|  |  | &nbsp;&nbsp;Title: Vice-President, Corporate Client Group - Finance |

---

------

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;Borrower: | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** |
|  | &nbsp;&nbsp;Per: | &nbsp;&nbsp;/s/ Bradley Little |
|  |  | &nbsp;&nbsp;Name: Bradley Little |
|  |  | &nbsp;&nbsp;Title: Chief Financial Officer |

---

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;Borrower: | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.** | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.** |
|  | &nbsp;&nbsp;Per: | &nbsp;&nbsp;/s/ Bradley Little |
|  |  | &nbsp;&nbsp;Name: Bradley Little |
|  |  | &nbsp;&nbsp;Title: Chief Financial Officer |

---

------

**<u>EXHIBIT A to SECOND AMENDMENT</u>**

**LOAN AGREEMENT**

**Dated as of February 12, 2021** 

**between**

**ROYAL BANK OF CANADA**

**as Lender**

**and**

**DIRTT ENVIRONMENTAL SOLUTIONS LTD.**

**and**

**DIRTT ENVIRONMENTAL SOLUTIONS, INC.**

**as Borrowers**

**and**

**THE GUARANTORS PARTY HERETO**

------

**INDEX OF EXHIBITS AND SCHEDULES**

Schedule A: Definitions<br>Schedule B: Lender's and Credit Parties' Addresses for Notices<br>Schedule C: Letters of Credit<br>Schedule D: Cash Management System<br>Schedule E: Fees<br>Schedule F: Schedule of Documents<br>Schedule G: Material Contracts

Schedule H: Bank Products

Schedule I: RBC Lease Facility

Schedule J: Post-Closing Undertakings

Disclosure Schedule (3.2): [\*\*\*]

Disclosure Schedule (3.6): [\*\*\*] <br>Disclosure Schedule (3.7): [\*\*\*]<br>Disclosure Schedule (3.9): [\*\*\*]<br>Disclosure Schedule (3.11): [\*\*\*]

Disclosure Schedule (3.12): [\*\*\*]<br>Disclosure Schedule (3.13): [\*\*\*] <br>Disclosure Schedule (3.15): [\*\*\*]<br>Disclosure Schedule (3.16): [\*\*\*]

Disclosure Schedule (3.17): [\*\*\*]<br>Disclosure Schedule (3.18): [\*\*\*]<br>Disclosure Schedule (5.2(b)): [\*\*\*]<br>Disclosure Schedule (5.2(e)): [\*\*\*]<br>Disclosure Schedule (6.1): [\*\*\*]<br>Exhibit A: Form of Notice of Borrowing or Continuation/Conversion<br>Exhibit B: Form of Borrowing Base Certificate<br>Exhibit C: Form of Compliance Certificate

Exhibit D: Form of Notice of Repayment

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**<br>TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT**<br>**REVOLVING CREDIT LOAN**<br> <u>Maximum Amount</u>: $15,000,000 or the Equivalent Amount in U.S.$ if available <br> <u>Letter of Credit Sublimit</u>: $5,000,000<br> <u>Term</u>: One (1) year <br> <u>Interest Rate</u>: RBP plus 0.75% per annum<br>RBUSBR plus 0.75% per annum<br>CDOR Rate plus 2.00% per annum<br>Term SOFR Rate plus 2.00% per annum <u>plus</u> the Term SOFR Adjustment<br> <u>Unused Line Fee</u>: 0.40% per annum<br> <u>Letter of Credit Fee</u>: to be determined at time of issue<br> <u>Borrowing Base</u>: (i) 85% of the value (as determined by Lender) of Eligible Accounts (other than Investment Grade or Insured Accounts), 90% of the value (as determined by Lender) of Eligible Investment Grade or Insured Accounts; plus<br>(ii) the lesser of (I) 85% of the net orderly liquidation value of Eligible Inventory, and (II) 75% of the book value of Eligible Inventory; less<br>&nbsp;&nbsp;&nbsp;&nbsp;(iii) reserves.<br>**OTHER FEES**<br> <u>Closing Fee</u>: $75,000 <br> <u>Collateral Monitoring Fee</u>: $1,000 per month in advance<br>**STATED EXPIRY DATE** February 12, 2024<br>The loans described generally here are established and governed by the terms and conditions set forth below in this Agreement and the other Loan Documents, and if there is any conflict between this general description and the express terms and conditions below or elsewhere in the Loan Documents, such other express terms and conditions shall control.<br>

------

**TABLE OF CONTENTS**

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| | | |
|:---|:---|:---|
| Section 1 – AMOUNT AND TERMS OF CREDIT | Section 1 – AMOUNT AND TERMS OF CREDIT | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1 | Loans | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2 | Term and Prepayment | 2 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.3 | Use of Proceeds | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.4 | Joint and Several | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.5 | Interest | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.6 | Continuation and Conversion Elections | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.7 | Cash Management System | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.8 | Fees | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.9 | Receipt of Payments; Taxes | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.10 | Application and Allocation of Payments | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.11 | Accounting | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.12 | Indemnity | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.13 | Borrowing Base; Reserves | 7 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.14 | Funding Losses | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.15 | Inability to Determine Rates | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.16 | Benchmark Replacement Setting | 8 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.17 | Canadian Benchmark Replacement Setting | 13 |
| Section 2 – CONDITIONS PRECEDENT | Section 2 – CONDITIONS PRECEDENT | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 | Conditions to the Initial Loans | 16 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 | Further Conditions to the Loans | 18 |
| Section 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS | Section 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS | 18 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 | Corporate Existence; Compliance with Law; Investment Company | 18 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 | Executive Offices; Corporate or Other Names | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3 | Corporate Power; Authorization; Enforceable Obligations | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4 | Financial Statements and Projections; Books and Records | 19 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5 | Material Adverse Change | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6 | Real Estate; Property | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7 | Ventures, Subsidiaries and Affiliates; Outstanding Shares and Indebtedness | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8 | Government Regulations | 20 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9 | Taxes; Charges | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.10 | Payment of Obligations | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.11 | Pension Plans | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12 | Litigation | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.13 | Intellectual Property | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.14 | Full Disclosure/Know Your Customer | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.15 | Environmental Matters | 22 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.16 | Insurance | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.17 | Bank Accounts | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.18 | Accounts and Inventory | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.19 | Conduct of Business | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.20 | Material Contracts | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.21 | Further Assurances | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.22 | Default | 24 |

---

------

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.23 | Sanctions | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.24 | Margin Regulations | 24 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.25 | Post-Closing Undertakings | 24 |
| Section 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES | Section 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 | Reports and Information | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 | Notices | 26 |
| Section 5 – FINANCIAL AND NEGATIVE COVENANTS | Section 5 – FINANCIAL AND NEGATIVE COVENANTS | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 | Financial Covenants | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 | Negative Covenants | 27 |
| Section 6 – SECURITY INTEREST | Section 6 – SECURITY INTEREST | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 | Grant of Security Interest | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 | Lender's Rights | 30 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 | Grant of License to Use Intellectual Property Collateral | 31 |
| Section 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES | Section 7 – EVENTS OF DEFAULT, RIGHTS AND REMEDIES | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 | Events of Default | 32 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 | Remedies | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 | Waivers by Credit Parties | 35 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4 | Proceeds | 35 |
| Section 8 – MISCELLANEOUS | Section 8 – MISCELLANEOUS | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 | Complete Agreement; Modification of Agreement | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 | Expenses | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 | No Waiver | 36 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 | Severability; Section Titles | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5 | Authorized Signature | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6 | Notices | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.7 | Counterparts | 37 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.8 | Assignments | 38 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9 | Time of the Essence | 38 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.10 | Governing Law | 38 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.11 | Submission to Jurisdiction; Waiver of Jury Trial | 38 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.12 | Press Releases | 39 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.13 | Reinstatement | 39 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.14 | Illegality | 39 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.15 | Set Off and Survival | 40 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.16 | Increased Costs | 40 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.17 | Conflict | 41 |
| Section 9 – SPECIAL PROVISIONS | Section 9 – SPECIAL PROVISIONS | 41 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 | Interest Act (Canada) | 41 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 | Excess Resulting from Exchange Rate Change | 41 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3 | Judgment Currency | 42 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4 | USA Patriot Act | 42 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5 | Calculations | 42 |

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This **LOAN AGREEMENT** is dated as of February 12, 2021 and agreed to by and between DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a "**Borrower**", and collectively the "**Borrowers**"), each other Credit Party executing this Agreement, and Royal Bank of Canada ("**Lender**").

**RECITALS:**

A. Borrowers desire 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. All schedules, attachments, addenda and exhibits hereto, or expressly identified to 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, the parties hereto agree as follows:

**Section 1 – AMOUNT AND TERMS OF CREDIT**

**1.1 Loans**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Advances</u>. 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 to the Borrowers advances (each, a "**Revolving Credit Advance**") in $ based upon RBP or the CDOR Rate (subject to a minimum of $500,000 in the case of Revolving Credit Advances made based upon RBP, $1,000,000 in the case of Revolving Credit Advances made based upon the CDOR Rate and in both cases in integral multiples of $100,000 in excess thereof) and subject to such limits as Lender may specify in U.S.$ based upon RBUSBR or the Term SOFR Rate (subject to a minimum of U.S.$500,000 in the case of Revolving Credit Advances made based upon RBUSBR, U.S.$1,000,000 in the case of Revolving Credit Advances made based upon the Term SOFR Rate and in both cases in integral multiples of U.S.$100,000 in excess thereof) and to incur Letter of Credit Obligations, subject to the Letter of Credit Sublimit, in an aggregate outstanding amount not to exceed the Borrowing Availability; and (ii) a Borrower may at its request from time to time borrow, repay and reborrow, and may cause Lender to incur Letter of Credit Obligations, under this Section 1.1.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Borrowing</u>. A Borrower shall request each Revolving Credit Advance by written notice to Lender substantially in the form of Exhibit A (each a "**Notice of Borrowing**") given no later than: (i) 3:00 p.m. (Toronto time) one (1) Business Day prior to the Business Day of the proposed advance, in the case of Revolving Credit Advances to be made in $ based upon RBP and in U.S.$ based upon RBUSBR; and (ii) 12:00 p.m. (Toronto time) one (1) Business Day prior to the Business Day of the proposed advance, in the case of Revolving Credit Advances to be made in $ based upon the CDOR Rate; and (iii) 12:00 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), in the case of Revolving Credit Advances to be made in U.S.$ based upon the Term SOFR Rate. Lender shall be fully protected under this Agreement in relying upon, and shall be entitled to rely upon: (i) any Notice of Borrowing believed by Lender to be genuine; and (ii) the assumption that the Persons making electronic requests or executing and delivering a Notice of Borrowing were duly authorized, unless the responsible individual acting thereon for Lender shall have actual knowledge to the contrary. As an accommodation to Borrowers, Lender may permit telephonic (which shall, promptly upon request be confirmed in writing by a Borrower), electronic, or facsimile requests for a

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Revolving Credit Advance and electronic or facsimile transmittal of instructions, authorizations, agreements or reports to Lender by Borrowers. Unless Borrowers specifically direct Lender in writing not to accept or act upon telephonic, facsimile or electronic communications from a Borrower, Lender shall have no liability to Borrowers for any loss or damage suffered by Borrowers 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, by facsimile or electronically and purporting to have been sent to Lender by Borrowers, and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Borrowing Base Certificate</u>. In making any Loan hereunder Lender shall be entitled to rely upon the most recent Borrowing Base Certificate delivered to Lender by Borrowers and other information available to Lender. Lender shall be under no obligation to make any further Revolving Credit Advance or incur any other Obligation if Borrowers shall have failed to deliver a Borrowing Base Certificate to Lender by the time specified in Section 4.1(a) or if an Event of Default shall be continuing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Letters of Credit</u>. Subject to the terms and conditions of this Agreement, Borrowers shall have the right to request, and Lender agrees to incur, the Letter of Credit Obligations for the account of Borrowers in accordance with Schedule C and for greater certainty, any amount advanced by Lender on account of the Letter of Credit Obligations shall be deemed a Loan and Revolving Credit Advance.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Bank Products</u>. Subject to the terms and conditions of this Agreement, Lender may provide Bank Products to Borrowers in accordance with Schedule H.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Overdrafts</u>. The existence of any overdraft in any of the bank accounts maintained with Lender in consequence of Lender charging or debiting any amount as provided in Section 1.10 or any cheque or other item presented for payment in an amount greater than the available balance in such account, whether or not pursuant to any limit established by Lender in its sole, unfettered discretion (an "**Overdraft**") shall be deemed to be a request for an advance hereunder and shall constitute a Loan and Revolving Credit Advance (being either an RBP based loan or an RBUSBR based loan, as the case may be) in the amount of such Overdraft. In addition to all other terms and conditions set out in this Agreement, Lender shall not, however, have any obligation to honour any Overdraft if such proposed Overdraft together with all other Overdrafts then outstanding should, in the aggregate, exceed $1,500,000, or the Equivalent Amount thereof in U.S.$.

**1.2 Term and Prepayment**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Upon the Commitment Termination Date, the obligation of Lender to make Revolving Credit Advances and extend other credit hereunder shall immediately terminate and Borrowers shall pay to Lender in full, in cash: (i) all outstanding Revolving Credit Advances and all accrued but unpaid interest thereon; (ii) an amount sufficient to enable Lender to hold cash collateral as specified in Schedule C; and (iv) all other non-contingent Obligations due to Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If the aggregate Revolving Credit Loans shall at any time exceed the Borrowing Availability, then Borrowers shall immediately repay the Revolving Credit Loan in the amount of such excess.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Borrowers shall have the right, at any time upon thirty (30) days prior written notice to Lender to: (i) terminate voluntarily Borrowers' right to receive or benefit from, and Lender's obligation to make Revolving Credit Advances and to incur Letter of Credit Obligations; and (ii) prepay all of the Obligations; <u>provided</u>, however, that with respect to Revolving

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Credit Advances made based upon the CDOR Rate or the Term SOFR Rate prepaid by Borrowers prior to the expiration date of the Interest Period applicable thereto, Borrowers shall pay to Lender the amounts described in Section 1.14(c). Following receipt of such notice by Lender, the effective date of termination of the Revolving Credit Loan specified in such notice shall be deemed to be the Commitment Termination Date. If Borrowers exercise their right of termination and prepayment, or if Lender's obligation to make Loans is terminated for any reason prior to the Stated Expiry Date then in effect (including as a result of the occurrence of a Default), Borrowers shall pay to Lender the amounts (if any) described in Section 1.14(c).

**1.3 Use of Proceeds**

Borrowers shall use the proceeds of the Loans: (i) to refinance on the Closing Date certain outstanding Indebtedness, if any, as provided in Section 2.1(b); (ii) for working capital and (iii) for general corporate purposes. The Borrowers agree not to request Loans solely for the purpose of accumulating and/or maintaining cash or cash equivalents in depository or investment accounts outside of their ordinary course of business.

**1.4 Joint and Several**

Except as expressly provided otherwise herein, the term "Borrower" as used herein shall include DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. and each of them or either of them, as the context may require. Each Borrower acknowledges that (i) it is a co-borrower hereunder and shall be jointly and severally, with the other Borrower, directly and primarily liable to the Lender for the Obligations regardless of which Borrower actually receives Loans or other extensions of credit hereunder or the amount of such Loans received or the manner in which the Lender accounts for such Loans or other extensions of credit on its books and records, (ii) each of the Obligations shall be secured by all of the Collateral, (iii) each Borrower shall have the obligations of co-maker and shall be primary obligors with respect to the Loans and the other Obligations, it being agreed that the Loans to each Borrower inure to the benefit of all Borrowers, and (iv) the Lender is relying on such joint and several liability of the Borrowers as co-makers in extending the Loans hereunder. Notwithstanding anything to the contrary contained in this Agreement, the Lender shall be entitled to rely upon any request, notice or other communication received by it from either Borrower on behalf of both Borrowers, and shall be entitled to treat its giving of any notice hereunder pursuant to Section 8.6 hereof as notice to each Borrower.

**1.5 Interest**

Borrowers shall pay interest to Lender on the aggregate outstanding Revolving Credit Advances as follows: (i) at a floating per annum rate equal to the RBP plus the Applicable Margin in the case of RBP based loans; (ii) at a floating per annum rate equal to the RBUSBR plus the Applicable Margin in the case of RBUSBR based loans; (iii) at a per annum rate equal to the CDOR Rate plus the Applicable Margin in the case of CDOR Rate based loans; and (iv) at a per annum rate equal to the TERM SOFR Rate plus the Applicable Margin in the case of TERM SOFR Rate based loans (in each case, the "**Advance Rate**"). All computations of interest in respect of Loans made in $ based upon RBP or the CDOR Rate or in U.S. $ based upon RBUSBR or the Term SOFR Rate and all calculations of the Letter of Credit Fee, 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 with respect to Loans made in $ based upon RBP or in U.S. $ based upon RBUSBR and on each Interest Payment Date with respect to Loans made in $ based upon the CDOR Rate. In the case of Loans made in U.S.$ based upon the Term SOFR Rate, interest on each advance will accrue daily on the basis of a year of 360 days, for the actual number of days occurring in the period for which such interest is payable and shall be calculated daily and compounded (if unpaid)

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in arrears on each Interest Payment Date. Any change in RBP or RBUSBR shall be effective as of the opening of business on the Business Day such change takes place.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. If any provision of this Agreement would oblige the Borrowers to make any payment of interest or other amount payable to the Lender in an amount or calculated at a rate which would be prohibited by any applicable law or would result in a receipt by the Lender of "interest" at a "criminal rate" (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by applicable law or so result in a receipt by the Lender of "interest" at a "criminal rate", such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows: first, by reducing the amount or rate of interest required to be paid to the Lender under this section and thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid to the Lender which would constitute interest for purposes of section 347 of the Criminal Code (Canada).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Interest shall be payable on the outstanding Revolving Credit Advances: (i) in arrears for the preceding calendar month on the first Business Day of each calendar month; (ii) on the Interest Payment Date, in the case of Revolving Credit Advances based upon the CDOR Rate or the Term SOFR Rate; (iii) on the Commitment Termination Date; and (iv) if any interest accrues or remains payable after the Commitment Termination Date, upon demand by Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Effective upon the occurrence of any Event of Default and for so long as any Event of Default shall be continuing, the Advance Rate and the Letter of Credit Fee shall in the discretion of Lender be increased by three percentage points (3%) per annum (such increased rate, the "**Default Rate**"), and all outstanding Obligations, including unpaid interest and Letter of Credit Fees, shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) 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.

**1.6 Continuation and Conversion Elections**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Borrowers may, upon irrevocable written notice to Lender in accordance with Section 1.6(b):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) elect, as of any Business Day, in the case of Revolving Credit Advances based upon RBUSBR, to convert any such Revolving Credit Advance (or any part thereof in an amount not less than U.S.$1,000,000 or that is in an integral multiple of U.S.$100,000 in excess thereof) into a Revolving Credit Advance based upon the Term SOFR Rate or, as of any Business Day at the end of any Interest Period applicable thereto, in the case of Revolving Credit Advances based upon the Term SOFR Rate, to convert any such Revolving Credit Advance (or any part thereof) into a Revolving Credit Advance based upon RBUSBR;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) elect, as of any Business Day, in the case of Revolving Credit Advances based upon RBP, to convert any such Revolving Credit Advance (any part thereof in any amount not less than $1,000,000 or that is in an integral multiple of $100,000 in excess thereof) into a Revolving Credit Advance based upon the CDOR Rate or,

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as of any Business Day at the end of any Interest Period applicable thereto, in the case of Revolving Credit Advances based upon the CDOR Rate, to convert any such Revolving Credit Advance (or any part thereof) into a Revolving Credit Advance based upon RBP;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) elect, as of the last day of the applicable Interest Period, to continue any Revolving Credit Advances based upon the Term SOFR Rate having Interest Periods expiring on such day (or any part thereof in an amount not less than U.S.$500,000 or that is in an integral multiple of U.S.$100,000 in excess thereof); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) elect, as of the last day of the applicable Interest Period, to continue any Revolving Credit Advances based upon the CDOR Rate having Interest Periods expiring on such day (or any part thereof in an amount not less than $500,000 or that is in an integral multiple of $100,000 in excess thereof);

<u>provided</u>, that if at any time the aggregate amount of Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate, as applicable, is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000 in the case of Revolving Credit Advances based upon the CDOR Rate or U.S.$1,000,000 in the case of Revolving Credit Advances based upon the Term SOFR Rate, such Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate, as applicable, shall automatically convert (i) in the case of Revolving Credit Advances based upon the Term SOFR Rate into Revolving Credit Advances based upon RBUSBR and (ii) in the case of Revolving Credit Advances based upon the CDOR Rate, into Revolving Credit Advances based upon RBP.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Borrowers shall deliver a notice of continuation/conversion ("**Notice of Continuation/Conversion**") in the form of Exhibit A to be received by Lender not later than 12:00 p.m. (Toronto time) at least one (1) Business Day in advance of the Continuation/Conversion Date if the Revolving Credit Advances are to be converted into or continued as Revolving Credit Advances based upon the CDOR Rate and at least two (2) Business Days in advance of the Continuation/Conversion Date if the Revolving Credit Advances are to be converted into or continued as Revolving Credit Advances based upon the Term SOFR Rate and otherwise by 12:00 p.m. on the Continuation/Conversion Date if the Revolving Credit Advances are to be converted into Revolving Credit Advances based upon RBP or RBUSBR.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If by no later than two (2) Business Days prior to the expiration of any Interest Period applicable to Revolving Credit Advances based upon the Term SOFR Rate or by not later than one (1) Business Day prior to the expiration of any Interest Period applicable to Revolving Credit Advances based upon the CDOR Rate, Borrowers have failed to deliver a Notice of Continuation/Conversion to Lender in respect of such Interest Period to be applicable to Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate or if any Default or Event of Default then exists, and/or if such Notice of Continuation/Conversion would apply to a Term SOFR Rate Advance after the date that is one month prior to the Commitment Termination Date, Borrowers shall be deemed to have elected to convert such Revolving Credit Advances based upon the Term SOFR Rate into Revolving Credit Advances based upon RBUSBR or Revolving Credit Advances based upon the CDOR Rate into Revolving Credit Advances based upon RBP, effective as of the expiration date of such Interest Period.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) During the existence of a Default or Event of Default, Borrowers may not elect to have a Revolving Credit Advance converted or continued and Revolving Credit Advances during such period shall be based upon RBP or RBUSBR, as applicable.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) After giving effect to any conversion or continuation of Revolving Credit Advances, there may not be more than five (5) different Interest Periods in effect hereunder unless consented to by Lender.

**1.7 Cash Management System**

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

**1.8 Fees**

Each Borrower agrees to pay to Lender the Fees set forth in Schedule E.

**1.9 Receipt of Payments; Taxes**

Each Borrower shall make each payment under this Agreement (not otherwise made pursuant to Section 1.10) 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, except as required by applicable law. If any 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. In addition but without duplication, each Credit Party shall jointly and severally indemnify Lender, within 10 days after demand therefor, for any Taxes (including Taxes imposed or asserted on amounts payable pursuant to this sentence) paid or payable by Lender in respect of any amount paid by Borrower under this Agreement, together with reasonable out-of-pocket expenses with respect thereto. For purposes of computing interest, Fees and determining Net Borrowing Availability, all payments shall be deemed received by Lender one (1) Business Day following receipt of immediately available funds in the Blocked Accounts.

**1.10 Application and Allocation of Payments**

Each 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 either Borrower, for: (a) payment of all Fees, expenses, indemnities, charges, costs, principal, interest, or other Obligations owing by such Borrower under this Agreement or any of the other Loan Documents; (b) the payment, performance or satisfaction of any of such 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.

**1.11 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, absent manifest error. 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 Borrowers shall not in any manner affect the obligation of Borrowers to repay any of the Obligations. Except to the extent that a Borrower shall, within thirty (30) days after such statement and accounting is sent, notify Lender in writing of any objection Borrowers may have thereto (stating with particularity the basis for such objection), such

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statement and accounting shall be deemed final, binding and conclusive upon Borrowers, absent manifest error.

**1.12 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 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.

**1.13 Borrowing Base; Reserves**

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) and such other information available to Lender. The Revolving Credit Loan shall be subject to Lender's continuing right to withhold from Borrowing Availability reserves, and to increase and decrease such reserves from time to time, if and to the extent that in Lender's good faith credit judgment such reserves are necessary, including to protect Lender's interest in the Collateral or to protect Lender against possible non-payment of Accounts for any reason by Account Debtors or possible diminution of the value of any Collateral or possible non-payment of any of the Obligations or for any Taxes or in respect of any state of facts which could constitute a Default. Lender may, at its option, implement reserves by designating as ineligible a sufficient amount of Accounts or Inventory which would otherwise be Eligible Accounts or Eligible Inventory, as the case may be, so as to reduce the Borrowing Base by the amount of the intended reserves. For greater certainty, and without limiting the Lender's ability to implement any other reserves, the Credit Parties agree that the lender shall withhold from Borrowing Availability a reserve in an amount (which may not be less than zero) equal to the aggregate amount of outstanding leases as of December 7, 2022, under the RBC Lease Facility as of the most recent appraisal accepted by the Lender, less (i) cash balance in the Reserve Account, and (ii) the aggregate final net orderly liquidation value (as determined by an appraisal firm acceptable to Lender) of the Equipment that is subject to a first priority perfected security interest in favour of the Lender.

**1.14 Funding Losses**

Each Borrower shall jointly and severally reimburse and indemnify Lender and hold Lender harmless from any loss or expense which Lender may sustain or incur as a consequence of:

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the failure of any Borrower to make on a timely basis any payment of principal on any Revolving Credit Advance made based upon the Term SOFR Rate or the CDOR Rate;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the failure of any Borrower to borrow, continue or convert a Revolving Credit Advance after Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Continuation/Conversion, as the case may be; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the prepayment or other payment (including after acceleration thereof but excluding prepayment mandated by the provisions of Section 8.14(b)) of any Revolving Credit Advance made based upon the Term SOFR Rate or the CDOR Rate on a day that is not the last day of the relevant Interest Period;

including any such loss of anticipated profit and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Revolving Credit Advances made based upon the Term SOFR Rate or the CDOR Rate or from fees payable to terminate the deposits from which such funds were obtained. Borrowers shall also pay any customary and reasonable administrative fees charged by Lender in connection with the foregoing.

**1.15 Inability to Determine Rates**

If Lender determines, which determination is final, conclusive and binding upon the Borrowers, that,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) for any reason, adequate and reasonable means do not exist for determining the CDOR Rate or the Term SOFR Rate for any requested Interest Period with respect to a proposed Revolving Credit Advance made based upon the CDOR Rate or the Term SOFR Rate (including, without limitation, because such rate is not available from or published on a current basis by the services used by the Lender to obtain such rate), or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) that the CDOR Rate or the Term SOFR Rate for any requested Interest Period with respect to a proposed Revolving Credit Advance made based upon the CDOR Rate or the Term SOFR Rate does not adequately and fairly reflect the effective cost to Lender of funding such Revolving Credit Advance or the costs to the Lender are increased or the income receivable by the Lender is reduced in respect of Revolving Credit Advance,

then Lender will promptly so notify Borrower. Thereafter, the obligation of Lender to make or maintain Revolving Credit Advances made based upon the CDOR Rate or the Term SOFR Rate, as applicable, hereunder shall be suspended until Lender revokes such notice in writing, and the Lender may request that an existing Term SOFR Rate based loan be converted to a RBUSBR based loan or an existing CDOR Rate loan be covered to a RBP based loan and any such loans will in any event automatically be converted on the expiry of the then current Interest Period. Borrowers may revoke any Notice of Borrowing or Notice of Continuation/Conversion then submitted by it. If Borrowers do not revoke such notice, Lender shall make the Revolving Credit Advance, as proposed by Borrowers, in the amount specified in the applicable notice submitted by Borrowers, but such Revolving Credit Advance shall be made as a RBUSBR based loan instead of a Term SOFR Rate based loan or a RBP based loan instead of a CDOR Rate based loan, as the case may be.

**1.16 Benchmark Replacement Setting**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Benchmark Replacement.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event, the Lender may amend this Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment will become effective at 5:00 p.m. (Toronto) time) on the fifth (5th) Business Day after the date such proposed amendment is

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provided to the Borrower without any action or consent of the Borrower. No replacement of a Benchmark with a Benchmark Replacement pursuant to this Section will occur prior to the applicable Benchmark Transition Start Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) No Fx Facility documentation shall be deemed to be a "Loan Document" for purposes of this Section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Benchmark Replacement Conforming Changes.** In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Lender will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Notices; Standards for Decisions and Determinations.** The Lender will promptly notify the Borrower of (i) the implementation of any Benchmark Replacement, and (ii) the effectiveness of any Benchmark Replacement Conforming Changes. The Lender will promptly notify the Borrower of the removal or reinstatement of any tenor of a Benchmark pursuant to Subsection (d). Any determination, decision or election that may be made by the Lender pursuant to this Section 1.16, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Unavailability of Tenor of Benchmark.** Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate), and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Lender in its reasonable discretion, or (B) the administrator of such Benchmark or the regulatory supervisor for the administrator of this Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative or in compliance with or aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks, then the Lender may modify the definition of "Interest Period" (or any similar or analogous definition) for any Benchmark settings at or after such time, to remove such unavailable, non-representative, non-compliant or non-aligned tenor, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement), or (B) is not, or is no longer, subject to an announcement that it is not or will not be representative or in compliance with or aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks (including a Benchmark Replacement), then the Lender may modify the definition of "Interest Period" (or any similar or analogous definition) for all Benchmark settings at or after such time, to reinstate such previously removed tenor.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Benchmark Unavailability Period.** Upon the Borrower's receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any pending request for a Revolving Credit Advance made based upon the Term SOFR Rate, conversion to or rollover of a Revolving Credit Advance made based upon the Term SOFR Rate to be made, converted or rolled over during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for, or a conversion to, a Loan based on RBUSBR, as applicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) **Definitions**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "**Available Tenor**" means, as of any date of determination and with respect to the then current Benchmark, as applicable, (x) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an Interest Period, or (y) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark, in each case as of such date and not including any tenor for such Benchmark that is then-removed from the definition of Interest Period pursuant to Section 1.16(d).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) "**Benchmark**" means, initially, Adjusted Term SOFR; provided that if a Benchmark Transition Event has occurred with respect to Adjusted Term SOFR or the then-current Benchmark, then "Benchmark" means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 1.16(a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) "**Benchmark Replacement**" means, with respect to any Benchmark Transition Event, the sum of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) the alternative benchmark rate that has been selected by the Lender and the Borrower giving due consideration to (a) any selection or recommendation of a benchmark rate or mechanism for determining such a rate by the Relevant Governmental Body, and (b) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for Canadian dollar denominated bilateral credit facilities in Canada at such time; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the related Benchmark Replacement Adjustment;

provided that if such Benchmark Replacement as so determined would be less than the Floor, such Benchmark Replacement shall be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) "**Benchmark Replacement Adjustment**" means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero), that has been selected by the Lender and the Borrower giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body, or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable

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Unadjusted Benchmark Replacement for Canadian dollar-denominated bilateral credit facilities in Canada at such time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) "**Benchmark Replacement Conforming Changes**" means, with respect to either the use or adoption of Term SOFR Rate or the use, adoption, administration or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of "RBUSBR", "Business Day," the definition of "Interest Period" or any similar or analogous definition, timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or rollover notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Lender decides may be appropriate to reflect the adoption and implementation of such rate or to permit the administration thereof by the Lender in a manner substantially consistent with market practice (or, if the Lender decides that adoption of any portion of such market practice is not administratively feasible or if the Lender determines that no market practice for the administration of such rate exists, in such other manner of administration as the Lender decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) "**Benchmark Replacement Date**" means the earliest to occur of the following events with respect to the then-current Benchmark:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) In the case of Clause (A) or Clause (B) of the definition of "Benchmark Transition Event", the later of (i) the date of the public statement or publication of information referenced therein, and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) In the case of Clause (C) of the definition of "Benchmark Transition Event", the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by or on behalf of the administrator of such Benchmark (or such component thereof) or the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative or non-compliant with or non-aligned with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks; provided that such non-representativeness, noncompliance or non-alignment will be determined by reference to the most recent statement or publication referenced in such Clause (C) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date. For the avoidance of doubt, the "Benchmark Replacement Date" will be deemed to have occurred in the case of Clause (A) or Clause (B) of this definition with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) "**Benchmark Transition Event**" means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the

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calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Term SOFR Administrator, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component thereof), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component thereof) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component thereof), which states that the administrator of such Benchmark (or such component thereof) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) or the regulatory supervisor for the administrator of such Benchmark (or such component thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative or in compliance with or aligned with the International Association of Securities Commissions (IOSCO) Principles for Financial Benchmarks.

For the avoidance of doubt, a "Benchmark Transition Event" will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) "**Benchmark Transition Start Date**" means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date, and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of the date of such public statement or publication of information (or, if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) "**Benchmark Unavailability Period**" means, the period (if any) (a) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 1.16, and (b) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 1.16.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) "**Relevant Governmental Body**" means the Board of Governors of the Federal Reserve System of the United States or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System of the United States or the Federal Reserve Bank of New York, or any successor thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) "**Unadjusted Benchmark Replacement**" means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment

**1.17 Canadian Benchmark Replacement Setting**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Replacing CDOR</u>. On May 16, 2022 Refinitiv Benchmark Services (UK) Limited ("**RBSL**"), the administrator of CDOR, announced in a public statement that the calculation and publication of all tenors of CDOR will permanently cease immediately following a final publication on Friday, June 28, 2024. On the date that all Available Tenors of CDOR have either permanently or indefinitely ceased to be provided by RBSL (the "**CDOR Cessation Date**"), if the then-current Canadian Benchmark is CDOR, the Canadian Benchmark Replacement will replace such Canadian Benchmark for all purposes hereunder and under any Loan Document in respect of any setting of such Canadian Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to this Agreement or any other Loan Document. If the Canadian Benchmark Replacement is Daily Compounded CORRA, all interest payments will be payable on a monthly basis.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Replacing Future Canadian Benchmarks</u>. At any time that the administrator of the then-current Canadian Benchmark has permanently or indefinitely ceased to provide such Canadian Benchmark or such Canadian Benchmark has been announced by the administrator or the regulatory supervisor for the administrator of such Canadian Benchmark pursuant to public statement or publication of information to be no longer representative of the underlying market and economic reality that such Canadian Benchmark is intended to measure and that representativeness will not be restored, the Borrowers may revoke any request for a borrowing of, conversion to or continuation of Loans to be made, converted or continued that would bear interest by reference to such Canadian Benchmark until the Borrower's receipt of notice from the Lender that a Canadian Benchmark Replacement has replaced such Canadian Benchmark, and, failing that, the Borrowers will be deemed to have converted any such request into a request for a borrowing of or conversion to a Revolving Credit Advance based upon RBP.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Canadian Benchmark Replacement Conforming Changes</u>. In connection with the implementation and administration of a Canadian Benchmark Replacement, the Lender will have the right to make Canadian Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Canadian Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Notices; Standards for Decisions and Determinations</u>. The Lender will promptly notify the Borrower of (i) the implementation of any Canadian Benchmark Replacement, (ii) any occurrence of a Term CORRA Transition Event, and (iii) the effectiveness of any Canadian Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by the Lender pursuant to this Section, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its or their sole discretion

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and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Unavailability of Tenor of Benchmark</u>. At any time (including in connection with the implementation of a Canadian Benchmark Replacement), if the then-current Canadian Benchmark is a term rate (including Term CORRA or CDOR), then (i) the Lender may remove any tenor of such Canadian Benchmark that is unavailable or non-representative for Canadian Benchmark (including Canadian Benchmark Replacement) settings and (ii) the Lender may reinstate any such previously removed tenor for Canadian Benchmark (including Canadian Benchmark Replacement) settings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Secondary Term CORRA Conversion</u>. Notwithstanding anything to the contrary herein or in any Loan Document and subject to the proviso below in this clause, if a Term CORRA Transition Event and its related Term CORRA Transition Date have occurred, then on and after such Term CORRA Transition Date (i) the Canadian Benchmark Replacement described in clause (1)(a) of such definition will replace the then-current Canadian Benchmark for all purposes hereunder or under any Loan Document in respect of any setting of such Canadian Benchmark on such day and all subsequent settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; and (ii) each Loan outstanding on the Term CORRA Transition Date bearing interest based on the then-current Canadian Benchmark shall convert, at the start of the next interest payment period, into a Loan bearing interest at the Canadian Benchmark Replacement described in clause (1)(a) of such definition for the respective Available Tenor as selected by the Borrower as is available for the then-current Canadian Benchmark; provided that, this clause (f) shall not be effective unless the Lender has delivered to the Borrower a Term CORRA Notice, and so long as the Lender has not received, by 5:00 p.m. (Toronto time) on the fifth (5<sup>th</sup>) Business Day after the date of the Term CORRA Notice, written notice of objection to such conversion to Term CORRA from the Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) Definitions.

"**Available Tenor**" means, as of any date of determination and with respect to the then-current Canadian Benchmark, as applicable, (x) if the then-current Canadian Benchmark is a term rate, any tenor for such Canadian Benchmark that is or may be used for determining the length of an Interest Period or (y) otherwise, any payment period for interest calculated with reference to such Canadian Benchmark, as applicable, pursuant to this Agreement as of such date.

"**Canadian Benchmark**" means, initially, the CDOR Rate; provided that if a replacement of the Canadian Benchmark has occurred pursuant to this Section titled "Canadian Benchmark Replacement Setting", then "Canadian Benchmark" means the applicable Canadian Benchmark Replacement to the extent that such Canadian Benchmark Replacement has replaced such prior benchmark rate. Any reference to "Benchmark" shall include, as applicable, the published component used in the calculation thereof.

"**Canadian Benchmark Replacement**", means, for any Available Tenor:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) For purposes of clause (a) of this Section, the first alternative set forth below that can be determined by the Lender:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the sum of: (i) Term CORRA and (ii) 0.29547% (29.547 basis points) for an Available Tenor of one-month's duration, and 0.32138% (32.138 basis points) for an Available Tenor of three-months' duration, or

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the sum of: (i) Daily Compounded CORRA and (ii) 0.29547% (29.547 basis points) for an Available Tenor of one-month's duration, and 0.32138% (32.138 basis points) for an Available Tenor of three-months' duration; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) For purposes of clause (b) of this Section, the sum of (a) the alternate benchmark rate and (b) an adjustment (which may be a positive or negative value or zero), in each case, that has been selected by the Lender and the Borrower as the replacement for such Available Tenor of such Canadian Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by the Relevant Canadian Governmental Body, for Canadian dollar-denominated syndicated credit facilities at such time;

provided that, if the Canadian Benchmark Replacement as determined pursuant to clause (1) or (2) above would be less than the Floor, the Canadian Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.

"**Canadian Benchmark Replacement Conforming Changes**" means, with respect to any Canadian Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of "RBP," the definition of "Business Day," the definition of "Interest Period," timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters, that the Lender decides may be appropriate to reflect the adoption and implementation of such Canadian Benchmark Replacement and to permit the administration thereof by the Lender in a manner substantially consistent with market practice (or, if the Lender decides that adoption of any portion of such market practice is not administratively feasible or if the Lender determines that no market practice for the administration of such Canadian Benchmark Replacement exists, in such other manner of administration as the Lender decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).

"**Canadian Benchmark Transition Event**" means, with respect to any then-current Canadian Benchmark other than CDOR, the occurrence of a public statement or publication of information by or on behalf of the administrator of the then-current Canadian Benchmark, the regulatory supervisor for the administrator of such Canadian Benchmark, the Bank of Canada, an insolvency official with jurisdiction over the administrator for such Canadian Benchmark, a resolution authority with jurisdiction over the administrator for such Canadian Benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for such Canadian Benchmark, announcing or stating that (a) such administrator has ceased or will cease on a specified date to provide all Available Tenors of such Canadian Benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Canadian Benchmark or (b) all Available Tenors of such Canadian Benchmark are or will no longer be representative of the underlying market and economic reality that such Canadian Benchmark is intended to measure and that representativeness will not be restored.

"**CDOR**" means the Canadian Dollar rate for bankers' acceptance borrowings known as the Canadian Dollar Offered Rate provided by RBSL, as the administrator of the Canadian Benchmark (or a successor administrator).

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"**CORRA**" means the Canadian Overnight Repo Rate Average administered and published by the Bank of Canada (or any successor administrator).

"**Daily Compounded CORRA**" means, for any Business Day in an interest payment period, CORRA with interest accruing on a compounded daily basis, with the methodology and conventions for this rate (which will include compounding in arrears with a lookback) being established by the Lender in accordance with the methodology and conventions for this rate selected or recommended by the Relevant Canadian Governmental Body for determining compounded CORRA for business loans; provided that if the Lender decides that any such convention is not administratively feasible for the Lender, then the Lender may establish another convention in its reasonable discretion; and provided that if the administrator has not provided or published CORRA and a Canadian Benchmark Transition Event with respect to CORRA has not occurred, then, in respect of any day for which CORRA is required, references to CORRA will be deemed to be references to the last provided or published CORRA.

"**Floor**" means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to CDOR.

"**Relevant Canadian Governmental Body**" means the Bank of Canada, or a committee officially endorsed or convened by the Bank of Canada, or any successor thereto.

"**Term CORRA**" means, for the applicable corresponding tenor, the forward-looking term rate based on CORRA that has been selected or recommended by the Relevant Canadian Governmental Body, and that is published by an authorized benchmark administrator and is displayed on a screen or other information service, as identified or selected by the Lender in its reasonable discretion at approximately a time and as of a date prior to the commencement of an Interest Period determined by the Lender in its reasonable discretion in a manner substantially consistent with market practice.

"**Term CORRA Notice**" means the notification by the Lender to the Borrower of the occurrence of a Term CORRA Transition Event.

"**Term CORRA Transition Date**" means, in the case of a Term CORRA Transition Event, the date that is set forth in the Term CORRA Notice provided to the Borrower, for the replacement of the then-current Canadian Benchmark with the Canadian Benchmark Replacement described in clause 1(a) of such definition, which date shall be at least thirty (30) Business Days from the date of the Term CORRA Notice.

"**Term CORRA Transition Event**" means the determination by the Lender that (a) Term CORRA has been recommended for use by the Relevant Canadian Governmental Body, and is determinable for any Available Tenor, (b) the administration of Term CORRA is administratively feasible for the Lender and (c) a Canadian Benchmark Replacement, other than Term CORRA, has replaced CDOR in accordance with paragraph (a) of the Section titled "Canadian Benchmark Replacement Setting"

**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:

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 F);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Lender shall have received evidence that all of the obligations of the Credit Parties to Royal Bank of Canada under the Existing Credit Facility as in effect immediately prior to the Closing Date will be performed and paid in full from the proceeds of the initial Loans;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Lender shall have received and shall be satisfied with such estoppel letters, landlord waivers, mortgagee, processor and bailee waivers and such other consents (including consents from Governmental Authorities) as Lender may require in its discretion;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Lender shall have received and shall be satisfied with such subordination and intercreditor agreements as Lender may require in its discretion;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) as of the Closing Date, Net Borrowing Availability shall be not less than $8,000,000 after giving effect to the initial Revolving Credit Advances and Letter of Credit Obligations (calculated on a pro forma basis, with trade payables being paid currently, and expenses and liabilities being paid in the ordinary course of business and without acceleration of sales);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) if required pursuant to Section 5.1(b), the Canadian Borrower shall have a cash balance in the Reserve Account of no less than the amount necessary to satisfy 1 years worth of lease payments required under the RBC Lease Facility;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Lender shall have received opinions of counsel to each of the Credit Parties (including opinions relating to enforceability, the Lender's security in each relevant jurisdiction and such other matters as the Lender reasonably considers necessary in its discretion) with respect to each Loan Document in form and substance satisfactory to Lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Lender (and where applicable, Lender's counsel) shall have completed and be satisfied with the results of all business, environmental and legal due diligence (including review with results satisfactory to Lender of Borrower's union contracts, if applicable);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) Lender shall have received and be satisfied with the results of, Borrower's field exam and inventory appraisal (which shall be current within 3 months) conducted by an appraisal firm acceptable to Lender, and with regard to the Collateral, the inventory control systems, the books and records and the reporting capability of the Credit Parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) Lender shall have been provided with and be satisfied with its review of, each Credit Parties' documents regarding its corporate and capital structure, Material Contracts, debt instruments and governing documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) Lender shall have reviewed and be satisfied with Credit Parties' customers' contracts (including distribution agreements, licence agreements and supply agreements) and, if requested by Lender, the purchase orders relating thereto;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) Lender shall have completed and be satisfied with the results of the background and reference checks on Borrower, senior management of Borrowers and the other Credit Parties and shall have received all documentation and other information required by

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regulatory and governmental authorities under applicable "know-your-customer", sanctions and anti-money laundering rules and regulations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) 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 Borrowers and each other Credit Party;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) Lender shall have received and be satisfied with the Borrowers' (i) most recent individual and consolidated Projections for the 24 months following the Closing Date (including projections of balance sheet, operating results, cash flows, Capital Expenditures and Net Borrowing Availability), and (ii) updated aged accounts receivable listing (supported by detailed rebates payable), aged accounts payable listing and detailed inventory listing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) a Compliance Certificate shall have been submitted prior to the Closing Date confirming all required covenants have been met; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) the Lender shall have received all fees and other amounts due and payable on or prior to the Closing Date, including, reimbursement or payment of all for all costs and expenses (including the fees and expenses of all counsel, advisors, consultants (including environmental and management consultants), field examiners, appraisers required to be reimbursed or paid by the Borrowers hereunder or under any other Loan Document.

**2.2 Further Conditions to the Loans**

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any event or circumstance, which has had or reasonably could be expected to have a Material Adverse Effect, shall have occurred since the Closing Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Default shall have occurred and be continuing or would result after giving effect to such Loan; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) after giving effect to such Loan, the Revolving Credit Loan would exceed the Borrowing Availability.

The request and acceptance by a 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 Borrowers that the conditions in this Section 2.2 have been satisfied; and (ii) a restatement by Borrowers of each of the representations and warranties made by it in each Loan Document and a reaffirmation by Borrowers of the granting and continuance of Lender's Liens pursuant to the Loan Documents.

**Section 3 – REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS**

To induce Lender to enter into this Agreement and to make the Loans, each 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:

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**3.1 Corporate Existence; Compliance with Law; Investment Company**

Each Credit Party:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) is, as of the Closing Date, and will continue to be: (i) a corporation or partnership, as applicable, duly organized, validly existing, registered and in good standing under the 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, laws relating to 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) is Solvent; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) is not an "investment company", or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company", within the meaning of the Investment Company Act of 1940, as amended.

**3.2 Executive Offices; Corporate or Other Names**

The full legal name of and jurisdiction of organization of each Credit Party and each of its Subsidiaries is set forth on Disclosure Schedule (3.2). 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) 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). Disclosure Schedule (3.2) also sets forth the corporate organizational chart of the Credit Parties as of the Closing Date.

**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 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 (except in the case of Contractual Obligations, where such violation would not reasonably be expected to result in a Material Adverse Effect) ; (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 (except in the case of the assignment of any receivables from a Governmental Authority) or any other Person, where such violation would not reasonably be expected to result in a Material Adverse Effect. 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

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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 laws affecting creditors' rights generally.

**3.4 Financial Statements and Projections; Books and Records**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Financial Statements delivered by Borrowers to Lender for its most recently ended Fiscal Year, Fiscal Quarter or and Fiscal Month, as applicable, are true, correct and complete and reflect fairly and accurately the financial condition of Borrowers as of the date of each such Financial Statement in accordance with GAAP with the exception that the monthly statements do not include full note disclosure or tax accruals. The Projections most recently delivered by Borrowers 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each 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 consolidated Financial Statements of the Canadian Borrower delivered to Lender and the Closing Date: (a) no Credit Party has incurred any obligations (except the Convertible Debentures), 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 unaudited consolidated monthly financial statements which could, alone or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (b) no events have occurred which alone or in the aggregate has 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.

**3.6 Real Estate; Property**

The real estate listed in Disclosure Schedule (3.6) constitutes, as of the Closing Date, all of the (i) real property owned, or (ii) leased or used by each Credit Party in its business having Collateral in excess of $50,000, and such Credit Party will not execute any material agreement or contract in respect of the material 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, 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**

As at the Closing Date, the ownership structure of the Canadian Borrower and its Subsidiaries is as set out in forth in Disclosure Schedule (3.7) and except as set forth in such schedule, no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or conducts any of its business with an Affiliate. Except for the Canadian Borrower, all of the issued and outstanding Shares of each Credit Party (including all rights to purchase options, warrants or similar rights or agreements pursuant

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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) or an updated Schedule (3.7) delivered pursuant to Section 4.2.

**3.8 Government Regulations**

To the extent any Credit Party is subject to or regulated under any federal, provincial, territorial or state statute, rule or regulation that restricts or limits such Person's ability to incur Indebtedness, pledge, hypothecate, mortgage or otherwise encumber its assets, or to perform its obligations under the Loan Documents, any such Credit Party has complied with such laws. 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 each 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 (other than Permitted Encumbrances) has been filed against any Credit Party or any Credit Party's property. Proper and accurate amounts have been and will be withheld by each 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, the Internal Revenue Service 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 related to taxes: (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.

**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**

Disclosure Schedule (3.11) lists all Plans applicable to the Credit Parties (other than, for greater certainty, Plans maintained by the Government of Canada or any Government of a Province of Canada to which a Credit Party is obligated to contribute under any applicable law). Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal, state, provincial or territorial laws. 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. Notwithstanding anything to the contrary in this Agreement, to the extent that Lender determines that any Lien associated with any Pension Event could reasonably be expected to have priority to any Lien established by Lender, a reserve will immediately be established in an amount that Lender deems necessary in its sole and absolute discretion (it being understood that such amount may equal the amount of the obligation secured by such Lien), and to the extent that after the establishment of such reserve the

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Revolving Credit Loans exceed Borrowing Availability and such overadvance is not cured within two (2) days, it shall be an immediate Event of Default. No ERISA Event has occurred or is reasonably expected to occur. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than the Minimum Actionable Amount the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent Financial Statements reflecting such amounts, exceed by more than the Minimum Actionable Amount, the fair market value of the assets of all such underfunded Plans.

**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; or (b) which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 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.

**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 Intellectual Property 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. Each Credit Party will maintain the patenting and registration of all 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 Intellectual Property developed by it and notify Lender in writing five (5) Business Days after filing any such new patent or registration provided that in each case the patenting or registration of such Intellectual Property is commercially reasonable or necessary and the failure to patent or register could reasonably be expected to result in a Material Adverse Effect.

**3.14 Full Disclosure/Know Your Customer**

No information contained in any Loan Document, the Financial Statements or any written statement furnished by or on behalf of any Credit Party under any Loan Document, 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). To the extent applicable, each Credit Party is in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the "<u>Patriot Act</u>"). No part of the proceeds of the Loans made hereunder will be used by any Credit Party or any of its Affiliates, directly or indirectly, for any payments to any subsidiary, joint venture partner, governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, or any other Person (i) in furtherance of an offer, payment, promise to pay or authorization of the payment of giving of money, or anything else of value, to any Person in violation of the United States Foreign Corrupt Practices

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Act of 1977, as amended, and the rules and regulations thereunder, or any other applicable anti-corruption law.

**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 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 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 shall comply in all material respects with all applicable Environmental Laws and environmental permits.

**3.16 Insurance** 

As of the Closing Date, Disclosure Schedule (3.16) lists all insurance of any nature maintained for current occurrences by each Credit Party, as well as a summary of the terms of such insurance. Each Credit Party shall deliver to Lender certificates of insurance evidencing all of its and those of its Subsidiaries: (a) "All Risks" and business interruption insurance policies naming Lender as loss payee; and (b) commercial general 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 any Borrowers 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, to be obtained on thirty (30) days notice to the applicable Credit Party, provided such insurance is available and can be obtained on commercially reasonable terms. Each Credit Party shall, on each anniversary of the Closing Date 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. Each Credit Party will maintain all such insurance in effect during the term of this Agreement.

**3.17 Bank Accounts**

Each Borrower and the other Credit Parties shall maintain deposit and/or other accounts, including the Blocked Accounts and Disbursement Accounts, with Lender or an Affiliate of Lender acceptable to Lender and will not have any other bank accounts except for the accounts shown on Disclosure Schedule (3.17) without the prior consent of Lender.

**3.18 Accounts and Inventory**

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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. No Credit Party has 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 a Credit Party or except for any extensions of time for payment in the ordinary course of its business consistent with historical practice, or after taking into account current COVID pandemic conditions, and as previously disclosed to Lender in writing. Disclosure Schedule (3.18) sets forth each Account Debtor from whom a Credit Party has obtained an offset waiver in form and substance satisfactory to Lender. 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 paragraph 1 of Schedule D or Lender as required hereunder; and (c) to each Credit Parties' knowledge, all Account Debtors have the capacity to contract.

**3.19 Conduct of Business**

Each Credit Party: (a) shall conduct its business substantially as now conducted or as otherwise permitted hereunder; and (b) shall at all times maintain, preserve and protect all of the Collateral and all of such Credit Party's other property and assets, 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.

**3.20 Material Contracts**

As at the Closing Date, all of the Material Contracts of the Credit Parties are described in Schedule G. No Credit Party has received any notice of default or termination under any Material Contracts and are not aware of any default upon the basis of which the other party to any such agreement could terminate such agreement.

**3.21 Further Assurances**

At any time and from time to time, upon the written request of Lender and at the sole expense of Borrowers, Borrowers and each other Credit Party shall promptly and duly execute and deliver any and all such further financing statements, financing change statements, 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 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 Sanctions**

No Credit Party nor any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC or Canadian Anti-Terrorism Laws. No Credit Party nor any of its Subsidiaries: (a) is a Sanctioned Person or a Sanctioned Entity; (b) has assets located in Sanctioned Entities; (c) derives revenues from investments in, or transactions with Sanctioned Persons or Sanctioned Entities; or (d) engages in any dealing or transactions prohibited by Canadian Anti-Terrorism Laws. The proceeds of any loan made hereunder will not be used (A) to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity or (B) in any other manner that would result in a violation of such sanctions by any Person.

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**3.24 Margin Regulations**

No Credit Party is, or will be, engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

**3.25 Post-Closing Undertakings**

The Credit Parties will ensure that all post closing undertakings as set forth in Schedule J (collectively, the "**Post-Closing Undertakings**") have been satisfied within the time periods set forth therein and any failure to satisfy any of the Post-Closing Undertakings within the applicable time periods shall constitute an Event of Default.

**Section 4 – FINANCIAL REPORTS, INFORMATION AND NOTICES**

**4.1 Reports and Information**

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

(a) as frequently as Lender may reasonably request and in any event no less than (i) within fifteen (15) Business Days following the end of each Fiscal Month or (ii) during a Cash Dominion Period, weekly on a day agreed upon between Lender and Borrowers and by 12:00 p.m. (Toronto time) on that day,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a Borrowing Base Certificate in the form of Exhibit B as of the close of business of the previous Business Day or previous Fiscal Month, as applicable, detailing the calculation of the Borrowing Base, certified as true and correct by an Authorized Officer,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) an accounts receivable roll forward analysis in the form of Attachment 1 to Exhibit B,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) an Inventory perpetual listing,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Aged accounts payable listing, aged accounts receivable listing and if requested by the Lender, reconciliations of the aged accounts receivable listing to the general ledger and from the general ledger to the Financial Statements, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) electronic copies of all accounts receivable, accounts payable and inventory ledgers, subledgers and other backup as Lender may reasonably require.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) within thirty (30) days following the end of each Fiscal Month:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) for each Borrower, 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 each 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 reasonably request;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) its trial balance for such Fiscal Month;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) for each Borrower, on a consolidated basis, Financial Statements for such Fiscal Month, which shall provide comparisons to budget and actual results for the

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corresponding period during the prior Fiscal Year, both on a monthly and year-to-date basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) a Compliance Certificate, together with a statement in the form of Attachment 1 to Exhibit C, showing the calculations used in determining compliance with the financial covenants hereunder; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) an updated Schedule G with the compliance certificate delivered pursuant to Section 4.1(b)(iv).

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) within sixty (60) days following the end of each Fiscal Year, consolidated Projections, by month for the next Fiscal Year prepared by Borrowers 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; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) all the other reports and information set forth in Exhibit B in the time frames set forth therein.

**4.2 Notices**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Borrowers shall advise Lender:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) as soon as practicable, on becoming aware, in reasonable detail, of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) any material change in the composition of the Collateral;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) the occurrence of any Default or other event which has had or could reasonably be expected to have a Material Adverse Effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) the existence or commencement of any Litigation against any Credit Party or any Plan, seeking damages of more than the Minimum Actionable Amount, in each case, if applicable, or any allegation of criminal misconduct against any Credit Party; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) any event or circumstance which, to such Credit Parties' 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) if and when it becomes aware of any Release, on, at, in, under, above, to, from or about any of its Real Property in writing within seven (7) Business Days and shall promptly forward to Lender a copy of any order, notice, permit, application, or any

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communication or report received by it or any other Credit Party in connection with any such Release;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) promptly of any issuance of securities by the U.S. Borrower to any Person other than the Canadian Borrower; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) as soon as practicable, update Schedule (3.7) to reflect any issuance of securities by the U.S. Borrower.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each Credit Party 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 the Credit Parties or the Collateral as Lender may reasonably request, all in reasonable detail.

**Section 5 – FINANCIAL AND NEGATIVE COVENANTS**

**5.1 Financial Covenants**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Upon an FCCR Trigger and each subsequent Fiscal Month thereafter until the Fiscal Month in which Net Borrowing Availability exceeds $5,000,000 for at least thirty (30) consecutive calendar days, the Canadian Borrower shall maintain a consolidated Fixed Charge Coverage Ratio of not less than 1.10:1.00 calculated on a trailing twelve (12) month basis and tested as of the end of each Fiscal Month.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) At all times where the Canadian Borrower has not maintained a consolidated Fixed Charge Coverage Ratio greater than 1.25:1.00 for each of the three immediately proceeding Fiscal Months, the Canadian Borrower shall maintain a cash balance in the Reserve Account of no less than the amount necessary to satisfy 1 years worth of lease payments required under the RBC Lease Facility, provided that if the Canadian Borrower then maintains such consolidated Fixed Charge Coverage Ratio for the above three month period such cash shall, upon the request of a Borrower, be released to the Borrowers and may be used for general corporate purposes.

**5.2 Negative Covenants**

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) such Credit Party shall not form any Subsidiary or merge with, amalgamate with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or make any investment in or, make a loan or advance to, any Person, except as provided in Section 5.2(c) below or except for transactions between Credit Parties; provided that, if any such transaction among Credit Parties involves a Borrower, the Borrower shall be the continuing or surviving Person or the surviving Person shall expressly assume the obligations of the Borrower pursuant to documents reasonably acceptable to the Lender and the Borrower (or, if not the Borrower, the surviving Person) and shall be a corporation, a limited liability company or partnership organized under the laws of Canada or the United States;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) such Credit Party shall not cancel any debt owing to it (other than the write off of accounts receivable (excluding Eligible Accounts) in the normal course) 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) Indebtedness pursuant to the RBC Leasing Facility, as amended, modified or supplemented from time to time; (iv) deferred taxes; (v) by endorsement of instruments or items of payment for deposit to the general account of such Credit Party; (vi) Guaranteed Indebtedness incurred for the benefit

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of Borrower if the primary obligation is permitted by this Agreement; (vii) Capital Lease Obligations and Indebtedness in respect of Purchase Money Indebtedness not to exceed $5,000,000; (viii) Indebtedness in respect of corporate credit cards in an amount not to exceed $1,000,000; (ix) Indebtedness between the Credit Parties; (x) Indebtedness pursuant to the Convertible Debentures; and (xi) additional Indebtedness incurred after the Closing Date in an aggregate outstanding amount for all such Credit Parties combined not exceeding the Minimum Actionable Amount;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) such Credit Party shall not enter into any lending, borrowing or other commercial transaction with any of its employees, directors, Affiliates or any other Credit Party other than (i) loans or advances made by one Credit Party to any other Credit Party; (ii) loans or advances to employees in the ordinary course of business in an aggregate outstanding amount not exceeding the Minimum Actionable Amount; and (iii) Permitted Investments made by the Credit Parties, provided that the aggregate amount of all such Permitted Investments outstanding at any time (valued at the time such investment was originally made) shall not exceed the lesser of $5,000,000 and 10% of the Adjusted EBITDA of the Borrower for the most recently completed twelve month period; and (iv) the sale, at fair market value, of raw materials, inventory and finished goods between Credit Parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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, ancillary thereto, except as permitted by Section 5.2(g) below, or amend its charter or by-laws or other organizational documents;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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, <u>provided</u>, that the foregoing shall not prohibit (i) the sale of Inventory or obsolete or unnecessary Equipment in the ordinary course of its business, (ii) the sale or transfer, at fair market value, of raw materials, inventory and finished goods from one Credit Party to another Credit Party, (iii) a sale or disposition of machinery or equipment, provided that the proceeds of sale of such machinery and equipment shall not in any consecutive 12 month period exceed an amount equal to 10% of Consolidated Assets, and (iv) the sale of shares by the Canadian Borrower which does not result in a Change of Control;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) such Credit Party shall not change its name, chief executive office, corporate offices, warehouses or other material locations having Collateral in excess of $50,000, or location of its records concerning the Collateral, or acquire, lease or use any real estate after the Closing Date where books and records or Collateral in excess of $50,000 will be located 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) such Credit Party shall not make or permit any Restricted Payment in any Fiscal Year, unless, the Payment Conditions have been satisfied; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) no part of such proceeds of the Loans will be used by any Credit Party to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or to reduce or retire any indebtedness incurred for any such purpose. No Credit Party nor any of its Subsidiaries are engaged principally or as one of its important

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activities in the business of extending credit for the purpose of purchasing or carrying any Margin Stock.

**Section 6 – SECURITY INTEREST**

**6.1 Grant of Security Interest**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) As collateral security for the prompt and complete payment and performance of the Obligations, each Borrower and each other Credit Party executing this Agreement hereby grants to Lender a security interest in, hypothec on and Lien upon all of its personal property and assets, 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 (including all Commodity Contracts (as such term is defined in the UCC)); all investments, Shares and Investment Property; all Inventory and Equipment; all Goods; all Commercial Tort Claims (as such term is defined in the UCC), 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 (all of the foregoing, together with any other collateral pledged to Lender or in respect of which Lender may acquire any Lien pursuant to each other Loan Document, collectively, the "**Collateral**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The security in the Collateral shall not extend or apply to consumer goods.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) With respect to the US Borrower, the security in the Collateral shall not extend to consumer goods or Excluded Property as defined in the U.S. Security Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The security in the Collateral shall not extend or apply to the last day of the term of any lease or sublease or any agreement for a lease or sublease, now held or hereafter acquired by the Borrowers in respect of real property, but the Borrowers shall stand possessed of any such last day upon trust to assign and dispose of it as the Lender may direct.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Nothing in this Section shall constitute an assignment or attempted assignment of any license, permit, contract or other agreement which by its provisions or by applicable law is not assignable, which would result in the termination of or a breach under such contract, or which requires the consent of a third party to its assignment unless such consent has been obtained. With respect to any contract which the Lender reasonably determines to be material, the applicable Borrower shall promptly, upon written request by the Lender, attempt to obtain the consent of any necessary third party to its assignment under this Agreement. Upon such consent being obtained or waived, this Section shall apply to the applicable contract without the necessity of any further assurance to effect such assignment. Unless and until such consent to assignment is obtained, such Borrower shall hold all benefit to be derived from such contract in trust for the Lender as additional security for payment of the Obligations and shall deliver up all such benefit to the Lender promptly upon demand by the Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Notwithstanding any other provisions of this Agreement, the security granted hereunder with respect to trademarks constitutes a security interest in, and charge, hypothecation and pledge of such collateral but does not constitute an assignment of such collateral to the Lender and, notwithstanding the generality of the foregoing, the collateral shall not include any intent-to-use trademark application prior to the filing of a "Statement of Use" or "Amendment to Allege Use" with respect thereto, to the extent, if any, that, and solely during

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the period, if any, in which the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) Each Borrower, Lender and each other Credit Party executing this Agreement agree that this Agreement creates, and is intended to create, valid and continuing Liens upon the Collateral in favour of Lender. Each Borrower and each other Credit Party executing this Agreement represents, warrants and promises to Lender that: (i) each Borrower and each other Credit Party granting a Lien in Collateral is the sole owner of, or otherwise has a valid property interest in, each item of the Collateral upon which it purports to grant a Lien pursuant to the Loan Documents, and has good and marketable title thereto free and clear of any and all Liens of others, other than Permitted Encumbrances; (ii) the security interests, hypothecs and Liens granted pursuant to this Agreement and the Loan Documents, upon completion of the filings and other actions listed on Disclosure Schedule (6.1) (which, in the case of all filings, registrations, publications and other documents referred to in said Disclosure Schedule, have been delivered to Lender in duly executed form, where applicable) will constitute valid perfected security interests and Liens in all Collateral in which a security interest may be perfected by filing or taking such other actions pursuant to the PPSA or the UCC as applicable in favour of Lender as security for the prompt and complete payment and performance of the Obligations, enforceable in accordance with the terms hereof against any and all creditors of and purchasers from any Credit Party (other than purchasers of Inventory in the ordinary course of business) and such security interests and Liens are prior to all other Liens on the Collateral in existence on the date hereof except for Permitted Encumbrances which have priority by operation of law or which are permitted to be prior pursuant to the terms of this Agreement and the other Loan Documents; and (iii) no effective security agreement, financing statement, deed of hypothec, equivalent security or Lien covering, charging or hypothecating all or any part of the Collateral is or will be on file or of record in any public office, except those relating to Permitted Encumbrances. Each Borrower and each other Credit Party executing this Agreement promise to defend the right, title and interest of Lender in and to the Collateral against the claims and demands of all Persons whomsoever (other than Persons holding Permitted Encumbrances on such Collateral that have priority over the Lender's Lien), and each shall take such actions, including: (x) upon Lender's request, the prompt delivery of all original Instruments, Chattel Paper and certificated Shares owned by each Borrower and each other Credit Party granting a Lien on Collateral to Lender; (y) notification of Lender's interest in Collateral at Lender's request; and (z) the institution of Litigation against third parties as shall be reasonable and prudent in order to protect and preserve each Credit Party's and Lender's respective and several interests in the Collateral. Upon Lender's request, each Borrower (and any other Credit Party granting a Lien on Collateral) shall mark its Books and Records pertaining to the Collateral to evidence the Loan Documents and the Liens granted under the Loan Documents. Upon Lender's request, all Chattel Paper shall be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of Royal Bank of Canada".

**6.2 Lender's Rights**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) (i) upon Lender's request, Borrower shall cooperate with the Lender to (or subsequent to an Event of Default Lender may at any time in Lender's own name or in the name of either 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) Lender may subsequent to an Event of Default, 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, each Borrower shall so notify such Account Debtors, parties to

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Contracts, and obligors in respect of Instruments, Chattel Paper or other Collateral. Upon an Event of Default, each Borrower hereby constitutes Lender or Lender's designee as such Borrower's legal attorney, agent and mandatary with power to endorse such Borrower's name upon any notes, acceptance drafts, money orders or other evidences of payment or Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each 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 any 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 any 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 its favour or to which it may be entitled at any time or times under or pursuant to any Contract, Instrument or License.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Each Borrower and each other Credit Party shall, with respect to each owned, leased, or controlled real property, during normal business hours and upon reasonable advance notice (unless a Default shall have occurred and be continuing, in which event no notice shall be required and Lender shall have access at any and all times subject to any limitations imposed upon the Borrower by any landlord of such real property) and without disruption to ordinary business operations: (i) provide access to such property to Lender and any of its officers, employees and agents, as frequently as Lender determines to be appropriate; (ii) 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 Borrowers' and such Credit Party's Books and Records; and (iii) 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 considers advisable (a "**Field Examination**"), and Borrowers and such Credit Party agree to render to Lender, at Borrowers' 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 one (1) Field Examination and one (1) inventory appraisal per year, <u>provided</u> that, (A) if at any time a Net Borrowing Availability has been less than $6,250,000 for five (5) consecutive Business Days during such 12-month period, one (1) additional Field Examination and one (1) additional inventory appraisal will be permitted in such 12-month period, and (B) if an Event of Default has occurred and is continuing, the Lender may do any of the foregoing at any time and as many times in any year during normal business hours and without advance notice, including, without limitation, additional Field Examinations and Inventory appraisals. The Credit Parties shall be responsible for the reasonable, documented costs and out of pocket expenses of all such visits, Field Examinations, inventory appraisals and audits, including without limitation, the Field Examination Fees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) After the occurrence and during the continuance of a Default, Borrower, at its own expense, shall use reasonable commercial efforts to 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.

**6.3 Grant of License to Use Intellectual Property Collateral**

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Each Borrower and each other Credit Party executing this Agreement hereby grants to Lender an irrevocable, non-exclusive license (exercisable upon the occurrence and during the continuance of an Event of Default without payment of royalty or other compensation to such Borrower or such Credit Party) to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, or hereafter acquired by such Borrower or such Credit Party, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof and represents, promises and agrees that any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any third Person; provided, that such license will terminate on the Termination Date.

**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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Borrower or any other Credit Party shall fail to pay (i) when due and as required to be paid herein, any amount of principal of any Loan, or (ii) within five (5) Business Days after the same becomes due and payable, any interest on any Loan or any fee due hereunder, or any other amount payable hereunder or with respect to any other Loan Document; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) (i) any default occurs in the observance or performance of any of the covenants or agreements contained in any of Sections 3.16, 3.17, 3.18, 4.1, 4.2, 5.1 or 5.2 of this Agreement, or (ii) 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 (including in respect of any Bank Products) and such default shall continue for thirty (30) days or more after the earlier to occur of: (i) notice of default from the Lender to the Borrowers of the occurrence, or (ii) the date any Borrower becomes aware of such default; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) an event of default occurs in respect of the RBC Lease Facility or the Convertible Debentures;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) (A) any Material Contract (excluding the RBC Lease Facility) terminates (other than, in each case, pursuant to its terms), or otherwise ceases to be legal, valid, binding and enforceable, (B) if a Credit Party breaches a Material Contract and such breach is not cured within any applicable period of grace unless such breach is subject to a dispute and the applicable Credit Party has accrued sufficient reserves in respect thereto in accordance with GAAP, or (C) an event of default shall occur under any Contractual Obligation of Borrower or any other Credit Party (other than this Agreement, the other Loan Documents and the RBC Lease Facility), and such event of default under this clause (C) either: (i) involves the failure 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; or (ii) causes 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) any representation or warranty in this Agreement or any other Loan Document is untrue or incorrect in any material respect (or, in the case of any such representation or warranty

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that is qualified as to materially or Material Adverse Effect, untrue or incorrect in any respect) where made or deemed made; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) there shall be commenced against any 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 of the assets of any 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 either Borrower or any other Credit Party which enforcement or exercise of rights would reasonably be expected to result in a Material Adverse Effect; or any custodian, receiver, interim receiver, liquidator, assignee, trustee, monitor, sequestrator or similar official is appointed in respect of either Borrower or any other Credit Party or takes possession of all or any substantial part of the assets of any Borrower or any other Credit Party or either 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 Federal, provincial, state or foreign bankruptcy, insolvency, receivership legislation, creditor protection legislation or other similar laws; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) a petition, proposal, notice of intention to file a proposal, case or proceeding shall have been commenced involuntarily against any 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, insolvency, receivership, or other 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 sixty (60) 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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) any 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 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

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a final judgment or judgments for the payment of money in excess of the Minimum Actionable Amount in the aggregate shall be rendered against any 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 any property of such Credit Party shall have occurred; or

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) 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);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) a Change of Control shall have occurred; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) a Pension Event or an ERISA Event shall have occurred that, alone or together with any other Pension Event or ERISA Events that have occurred, 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 Lender in either case in an aggregate amount exceeding the Minimum Actionable Amount.

**7.2 Remedies**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If any Default shall have occurred and be continuing, then Lender may terminate or suspend its obligation to make further Revolving Credit Advances and to incur additional Letter of Credit or 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, including contingent liabilities with respect to Letter of Credit Obligations, whereupon such Obligations shall become and be due and payable; (ii) require that all Letter of Credit Obligations be fully cash collateralized pursuant to Schedule C; or (iii) exercise any rights and remedies provided to Lender under the Loan Documents or at law or equity, including all remedies provided under the PPSA or the UCC; provided, that upon the occurrence of any Event of Default specified in Sections 7.1(f), 7.1(g) or 7.1(h), 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Without limiting the generality of the foregoing, each 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 law, to purchase for the benefit of Lender the whole or any part of said Collateral so sold, which upon consummation of such purchase will be free of any right of equity of redemption, which right the Borrowers and each other Credit Party executing this Agreement hereby releases. Such sales may be adjourned, or continued

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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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Upon the occurrence and during the continuance of an Event of Default and at Lender's request, each 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, each Borrower and each other Credit Party executing this 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. Each 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. Each 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 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, each of 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. Each of 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**

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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 (including the cash collateralization of any Letter of Credit Obligations) 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 law, the surplus, if any, shall be paid to Borrowers or their 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. Each 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.

**8.2 Expenses**

Each Borrower jointly and severally agrees to pay or reimburse Lender for all costs and expenses (including the reasonable 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 any Borrower or any other Person on behalf of any 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, a 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 any 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, each Borrower will jointly and severally reimburse Lender for the costs (including reasonable out of pocket expenses plus applicable taxes) related to the Lender's due diligence including Field Examinations and the verification, evaluation, assessment and approval of Collateral.

**8.3 No Waiver**

Neither Lender's failure, at any time, to require strict performance by any 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 any Borrower or any other Credit Party to Lender contained in any Loan Document and no Default by a 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

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signed by an officer or other authorized employee of Lender and directed to any 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.

**8.4 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 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 any 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.

**8.5 Authorized Signature**

Until Lender shall be notified in writing by a 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 any Borrower or such other Credit Party shall bind such Borrower or such other Credit Party and be deemed to be the act of such Borrower or such other Credit Party affixed pursuant to and in accordance with resolutions duly adopted by such 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.

**8.6 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 similar facsimile or electronic transmission (with such telecopy, e-mail or facsimile promptly confirmed by delivery of a copy by personal delivery or mail as otherwise provided in this Section 8.6); (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 or facsimile number indicated in Schedule B or to such other address (or facsimile number) 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 a Borrower or Lender) designated in Schedule B to receive copies shall in no way adversely affect the effectiveness of such communication.

**8.7 Counterparts**

This Agreement may be executed in any number of counterparts and by facsimile or other electronic format (including pdf) and by different parties in separate counterparts, each of which when so executed shall be

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deemed to be an original and all of which taken together shall constitute one and the same instrument. The words "execution", "execute", "executed", "signed", "signature" and words of like import in this Agreement or in or related to any document to be signed in connection with this Agreement and the transactions contemplated hereby, shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, in accordance with applicable law including, without limitation, as in provided Parts 2 and 3 of the Personal Information Protection and Electronic Documents Act (Canada), the Electronic Commerce Act, 2000 (Ontario), the Electronic Transactions Act (British Columbia), the Electronic Transactions Act (Alberta), or any other similar laws based on the Uniform Electronic Commerce Act of the Uniform Law Conference of Canada. The parties may, in their discretion**,** require that any such documents and signatures executed electronically or delivered by fax or other electronic transmission be confirmed by a manually-signed original thereof; provided that the failure to request or deliver the same shall not limit the effectiveness of any document or signature executed electronically or delivered by fax or other electronic transmission.

**8.8 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 any 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.

**8.9 Time of the Essence**

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

**8.10 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 Alberta applicable to contracts made and performed in such province, without regard to the principles thereof regarding conflicts of laws, and any applicable laws and the federal laws of Canada applicable therein.

**8.11 Submission to Jurisdiction; Waiver of Jury Trial**

(a) Each Borrower and each other Credit Party executing this Agreement hereby consent and agree that the courts located in Alberta shall have exclusive jurisdiction to hear and determine any claims or disputes between a 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. Each 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 such 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. Each 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 such Borrower or such Credit Party at the address set

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forth in Schedule B of this Agreement and that service so made shall be deemed completed upon the earlier of such 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, ANY 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.

**8.12 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 Royal Bank of Canada or its affiliates 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 law and then, in any event, such Credit Party or Affiliate will use reasonable commercial efforts to 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 or Lender's counsel of customary advertising material (including under league tables, tombstones and for advertising purposes) 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.

**8.13 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 any Borrower or any other Credit Party, or otherwise, all as though such payments had not been made.

**8.14 Illegality**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) 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, Letter of Credit Obligations, Bank Products, the RBC Lease Facility or any other Obligations hereunder, it shall have the right to immediately terminate such Loans, Letter of Credit Obligations, Bank Products, the RBC Lease Facility or other Obligations as it shall determine necessary or appropriate and to terminate any commitment to make or continue to make such Loans, Letters of Credit Obligations, Bank Products, the RBC Lease Facility or other Obligations and/or to terminate its commitments hereunder and any of the Loan Documents as it shall determine necessary or appropriate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If Lender determines that it is unlawful to make, maintain or fund any Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate, as applicable, each Borrower shall, upon its receipt of notice of such fact and demand from Lender, prepay in full such Revolving Credit Advances then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof, if Lender may lawfully continue to maintain such Revolving Credit Advances to such day, or immediately, if Lender may not lawfully continue to maintain such Revolving Credit Advances. No payment shall be due under Section 1.14 upon prepayment of Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate pursuant to or as a result of the circumstances described in the preceding sentence. If any Borrower is required to so prepay any Revolving Credit Advances based upon the Term SOFR Rate or the CDOR Rate, as

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applicable, then concurrently with such prepayment, such Borrower shall borrow from Lender, in the amount of such repayment, Revolving Credit Advances based upon RBUSBR or RBP, as applicable.

**8.15 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 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.

**8.16 Increased Costs**

If, by reason of: (a) any adoption of, taking effect of, or change in any Requirement of Law (including any change by way of imposition or increase of statutory reserves or other reserve requirements) or the application, administration, implementation or interpretation thereof; or (b) the compliance with any rule, directive, guideline or request from any government authority or other Person exercising control over banks or financial institutions generally (whether or not having the force of law), including the (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, in each case regardless of the date enacted, adopted or issued:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Lender (or its applicable lending office) shall be subject to any Tax with respect to any Loan (including a Letter of Credit) or a change shall result in the basis of taxation of any payment to Lender (or its applicable lending office) with respect to its obligation to make or continue any Loan or issue Letters of Credit or participate in Letter of Credit Obligations; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) any reserve (including any imposed by the board of governors or any other applicable Governmental Authority), special deposits, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender (or its applicable lending office) shall be imposed or deemed applicable, or any other condition, affecting Lender's (or its applicable lending office's) obligation to make any Loans or issue Letters of Credit, shall be imposed on Lender (or its applicable lending office);

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

In the event that Lender shall have determined that the adoption, effectiveness, or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any any government authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency (<u>provided</u> that for purposes of this Agreement, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel

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Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to have been adopted and become effective after the date hereof), has or would have the effect of reducing the rate of return on the capital of Lender or any corporation controlling Lender as a consequence of, or with reference to, of agreeing to make or making, funding or maintaining Loans, Letters of Credit or Letter of Credit Obligations (except to the extent already included in determination of the rate of interest) or of maintaining its obligation to make any such Loan or issue Letters of Credit to a level below that which Lender or such controlling corporation could have achieved but for such adoption, effectiveness, applicability, change or compliance (taking into consideration the policies of Lender or such controlling corporation with regard to capital adequacy), then Lender shall promptly notify the Borrowers of such event, and each Borrower jointly and severally agrees to, within five (5) Business Days following demand therefor, pay Lender such additional amount or amounts as will compensate Lender or such controlling corporation on an after-tax basis for such reduction.

If Lender determines that, because of circumstances described above or any other circumstances arising hereafter affecting such Lender the Applicable Margin will not adequately and fairly reflect the cost to Lender of funding Loans or incurring Letter of Credit Obligations or the cost to Lender of issuing Letters of Credit, then (A) Lender shall promptly notify the Borrowers of such event; and (B) Lender's obligation to fund Loans and issue Letters of Credit, shall be immediately suspended, until each condition giving rise to such suspension no longer exists.

Notwithstanding anything herein to the contrary, each 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 any 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.

**8.17 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.

**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, as in the case of all Revolving Credit Advances in U.S.$ made based upon the Term SOFR Rate, 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. Each Credit Party confirms that it fully understands and is able to calculate the rate of interest applicable to Loans under this Agreement based on the methodology for calculating per annum rates provided for in this Agreement. Each Credit Party hereby irrevocably agrees not to plead or assert, whether by way of defence or otherwise, in any proceeding relating to this Agreement or any Loan Documents, that the interest payable under this Agreement and the calculation thereof has not been adequately disclosed to such Credit Party as required pursuant to Section 4 of the Interest Act (Canada).

**9.2 Excess Resulting from Exchange Rate Change**

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If at any time following one or more fluctuations in the exchange rate of the Canadian Dollar against the U.S. Dollar (a) the Obligations exceed any limitations hereunder or (b) any part of the Obligations exceeds any limit set forth herein for such Obligations, each 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. Each 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 the 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, each Borrower jointly and severally 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.

**9.4 USA Patriot Act**

Lender hereby notifies each Credit Party that, pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), it is required to obtain, verify and record information that identifies the Credit Parties, which information includes the name and address of each of the parties hereto and other information that will allow Lender to identify all parties in accordance with said Act. The Credit Party shall promptly provide such information upon request by Lender.

**9.5 Calculations**

All references in the Loan Documents to Loans, Letters of Credit, Obligations, Borrowing Base components and other amounts shall be denominated in Canadian Dollars, unless expressly provided otherwise. The Canadian Dollars equivalent of any amounts denominated or reported under a Loan Document in a currency other than Canadian Dollars shall be determined by Lender on a daily basis, based on its rate of exchange as determined on the date of determination. The Credit Parties shall report value and other Borrowing Base components to Lender in the currency invoiced by Borrowers or shown in Borrowers' financial records, and unless expressly provided otherwise, shall deliver Financial Statements and calculate financial covenants in Canadian Dollars. Notwithstanding anything herein to the contrary, if any Obligation is funded and expressly denominated in a currency other than Canadian Dollars, Borrowers shall repay such Obligation in such other currency.

[Signature Pages Follow]

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

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.

**BORROWER:**

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| | |
|:---|:---|
| &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |

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| | |
|:---|:---|
| &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.**  | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.**  |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |

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Signature Page to Loan Agreement

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**LENDER:**

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| | |
|:---|:---|
| &nbsp;&nbsp;**ROYAL BANK OF CANADA** | &nbsp;&nbsp;**ROYAL BANK OF CANADA** |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title: Attorney in Fact |

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Signature Page to Loan Agreement

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**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 or the UCC, as applicable, 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: (i) 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); (ii) all of such Person's rights in, to and under all purchase orders or receipts for goods or services; (iii) 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 statute or law including those under Section 81.1 of the BIA, and rights to returned, claimed or repossessed goods); (iv) 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 (v) all collateral security and guarantees of any kind given by any other Person with respect to any of the foregoing.

"**Adjusted EBITDA**" means with respect to any Person for any period, the Net Income of such Person for such period <u>plus</u>, without duplication and to the extent reflected as a charge in the statement of income included in the financial statements of such Person:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) all amounts deducted in the calculation thereof in respect of Depreciation Expense, and current and deferred taxes, net losses of Subsidiaries and any other losses incurred in respect of investments that are in each case accounted for on an equity basis;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Total Interest Expense;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) all unrealized hedging losses; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) non-cash stock based compensation expenses (options, performance stock units, deferred stock units) and any extraordinary, non-recurring or unusual expenses or losses (including, whether or not otherwise includable as a separate item in such statement of income, losses on sales outside of the ordinary course of business or on sales of property of a Credit Party which is leased back to any Credit Party);

<u>less</u>, without duplication and to the extent reflected as a credit in such statement of net income:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) any reduction of income taxes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) all unrealized hedging gains;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) amounts included in the calculation thereof in respect of net profits of Subsidiaries and any other profits in respect of investments that are in each case accounted for on an equity basis; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) any extraordinary, non-recurring or unusual income or gains (including, whether or not otherwise includable as a separate item in such statement of income, gains on sales

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outside of the ordinary course of business or on sales of property by a Credit Party that are leased back to any Credit Party).

"**Adjusted Term SOFR**" means, for purposes of any calculation, the rate per annum equal to (a) the Term SOFR Rate for such calculation <u>plus</u> (b) the Term SOFR Adjustment.

"**Advance Rate**" shall have the meaning assigned to it in Section 1.5.

"**Affiliate**" shall mean, with respect to a Person: (i) each other Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, twenty five percent (25%) or more of the Shares having ordinary voting power for the election of directors of such Person; (ii) each other Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person; or (iii) each of such Person's directors, officers, managing members, partners, or trustees. 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 Borrowers and Lender.

"**Applicable Margin**" shall mean, for the purposes of determining the applicable interest rate for the Revolving Credit Loans:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) [\*\*\*]% per annum in the case of RBP and RBUSBR based loans,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) [\*\*\*]% per annum in the case of CDOR Rate based loans, and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) [\*\*\*]% per annum <u>plus</u> the Term SOFR Adjustment in the case of Term SOFR Rate based loans.

"**Appraisal Fees**" shall have the meaning assigned to it in Schedule E.

"**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.

"**Bank Products**" shall mean any ancillary services, facilities or obligations which Lender may in its sole discretion undertake in connection with any of the Credit Parties and includes any Foreign Exchange Facility described in Schedule H hereto.

"**Bankruptcy Code**" shall mean title 11 of the United States Code, 11 U.S.C. §§ 100. et seq., as in effect from time to time or at any time.

"**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 Accounts**" shall have the meaning assigned to it in Schedule D.

"**Blocked Accounts Agreement**" shall have the meaning assigned to it in Schedule D.

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"**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 any Borrower's or any other Credit Party's business.

"**Borrower**" shall mean the Persons identified as such in the preamble of this Agreement and includes their successors.

"**Borrowing Availability**" shall mean, at any time, the lesser of: (i) the Maximum Amount; and (ii) the Borrowing Base.

**"Borrowing Base**" shall mean at any time an amount equal to the sum at such time of: (i) eighty-five percent (85%) of Eligible Accounts (other than Eligible Investment Grade or Insured Accounts), ninety percent (90%) of Eligible Investment Grade or Insured Accounts, <u>plus</u> (ii) the lesser of: (a) eighty-five percent (85%) of the net orderly liquidation value (as determined by an appraisal firm acceptable to Lender) of Eligible Inventory; and (b) seventy-five percent (75%) of the book value of Eligible Inventory (recorded at the lower of cost and net realizable value) and, <u>less</u> (iii) reserves, established by Lender from time to time in its good faith discretion, including the reserves set forth in Section 1.13.

"**Borrowing Base Certificate**" shall mean a certificate in the form of Exhibit B.

"**Business Day**" shall mean: (i) 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 Calgary, Alberta; and (ii) with respect to all notices, determinations, fundings and payments in connection with the Term SOFR Rate, or any other calculation or determination involving SOFR, the term "Business Day" means any day that is only a U.S. Government Securities Business Day.

"**Canadian Anti-Terrorism Laws**" shall mean all laws of Canada, or any province, territory or political subdivision thereof relating to the prevention of money laundering and terrorist financing including without limitation the Criminal Code (Canada), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the United Nations Suppression of Terrorism Regulations and the Anti-terrorism Act (Canada) and all regulations and orders made thereunder.

"**Canadian Borrower**" DIRTT Environmental Solutions Ltd., a corporation incorporated under the laws of the Province of Alberta.

"**Canadian Dollars", "CAD$" or "$"** shall mean the lawful currency of Canada.

"**Capital Expenditures**" means 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 real property, fixtures or equipment by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease or a finance lease on a balance sheet of such Person, other than, in the case of any Borrower or any Credit Party, any such lease under which any 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 be capitalized on a balance sheet of such lessee in respect of such Capital Lease.

"**Cash Collateral Account**" shall have the meaning assigned to it in Schedule C.

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"**Cash Dominion Period**" shall mean a period: (i) commencing on the date on which either (x) an Event of Default has occurred and has been continuing; or (y) Net Borrowing Availability has been less than $$6,250,000 for five (5) consecutive Business Days; and (ii) ending on the first date thereafter on which both (x) no Event of Default has existed or been continuing at any time; and (y) Net Borrowing Availability shall have been not less than $6,250,000 for thirty (30) consecutive calendar days.

"**Cash Taxes**" means for any Person for any period, the amount of all income Taxes (including federal and provincial income Taxes) and other Taxes payable by such Person on its net taxable income or its capital for such period (which for greater certainty, does not include deferred Taxes or refundable Taxes).

"**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.

"**CDOR Rate**" means for any day and relative to bankers' acceptances having any specified term and face amount or a Loan having a specified term and principal amount, the average of the annual rates applicable to Canadian Dollar bankers' acceptances having such specified term and face amount (or a term and face amount as closely as possible comparable to such specified term and face amount or principal amount) quoted daily by the banks listed in Schedule 1 of the Bank Act (Canada) that appears on the Refinitiv Screen CDOR page at approximately 10:00 a.m. EST on such day (or, if such day is not a Business Day, as of approximately 10:00 a.m. EST on the preceding Business Day); <u>provided</u> that, if any such quoted rate is below zero, then the CDOR Rate shall be deemed to be zero.

"**Change of Control**" shall mean, the occurrence of any of the following events:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) one or more Persons, acting jointly or in concert (within the meaning of the Securities Act (Alberta)), shall acquire more than 50% of the interests in the Shares of a Borrower; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) a Borrower or any other Credit Party shall cease to own, control or direct 100% of the voting Shares of any Subsidiary of the Borrower.

"**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: (i) the Collateral; (ii) the Obligations; (iii) the employees, payroll, income or gross receipts of any Credit Party; (iv) the ownership or use of any assets by any Credit Party; or (v) 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).

"**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. With respect to property located in the United States, Chattel Paper shall also include "Chattel Paper" as defined in the UCC and "Electronic chattel paper" as defined in the UCC.

"**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.

"**Closing Fee**" shall have the meaning assigned to it in Schedule E.

"**Code**" means the U.S. Internal Revenue Code of 1986, and the United States Treasury Department regulations promulgated thereunder, each as amended from time to time.

"**Collateral**" shall have the meaning assigned to it in Section 6.1.

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"**Collateral Monitoring Fee**" shall have the meaning assigned to it in Schedule E.

"**Commitment Termination Date**" shall mean the earliest of: (i) the Stated Expiry Date; and (ii) the date Lender's obligation to advance funds, issue Letters of Credit 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 C.

**"Consolidated Assets"** means the total assets of the Canadian Borrower, as determined on a consolidated basis and as shown on the most recent financial statements of the Borrowers delivered to the Lender pursuant to Section 4.1.

"**Continuation/Conversion Date**" shall mean the date on which a Revolving Credit Advance is converted from or into or continued as a Revolving Credit Advance based upon the Term SOFR Rate or the CDOR Rate.

"**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.

"**Convertible Debentures**" means (i) the convertible unsecured subordinated debentures of the Canadian Borrower in a principal amount of $40,250,000 issued pursuant to a first supplemental indenture dated as of January 25, 2021; and (ii) the convertible unsecured subordinated debentures of the Canadian Borrower in a principal amount not to exceed $50,000,000 to be issued pursuant to a second supplemental indenture dated on or about November 2021.

"**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: (i) 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 (ii) 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.

"**Credit Party**" shall mean each 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(c).

"**Depreciation Expense**" means, for any period with respect to any Person, depreciation, amortization, depletion and other like reductions to income of such Person for such period not involving any outlay of cash.

"**Disbursement Accounts**" shall have the meaning assigned to it in Schedule D.

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"**Documents**" shall mean all documents of title (as defined in the PPSA), and with respect to property located in the United States, "Documents" as such term is defined in the UCC, 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.

"**Eligible Accounts**" shall mean as at the date of determination, all Accounts of the Borrowers except any Account:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) that does not arise from the sale of goods or the performance of services by such Borrower in the ordinary course of such Borrower's business;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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, or for which the Account Debtor has disputed its obligation to pay all or any portion of the Account;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) with respect to which an invoice, acceptable to Lender in form and substance, has not been sent to the Account Debtor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) that is not owned by such 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;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) that is the obligation of an Account Debtor that is the federal, state, provincial or territorial government or a political subdivision thereof, or any department, agency, public corporation or instrumentality thereof unless Lender has agreed to the contrary in writing;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) that is the obligation of an Account Debtor to whom such Borrower is or may become liable for goods sold or services rendered by the Account Debtor to such Borrower, to the extent of such Borrower's liability to such Account Debtor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) that is an obligation for which the total unpaid Accounts of the Account Debtor exceed 25% (or 50% in the case of Accounts (i) payable by an Investment Grade Debtor; or (ii) insured with an insurer which is acceptable to Lender on terms satisfactory to Lender in its sole discretion) of the aggregate of all gross Accounts as related to accounts receivable (excluding any inter-company accounts receivable), to the extent of such excess;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) that is not paid within sixty (60) days from its due date or ninety (90) days (one hundred and twenty (120) days in the case of Accounts (i) payable by an Investment Grade Debtor; or (ii) insured with an insurer which is acceptable to Lender on terms satisfactory to Lender in its sole discretion) from its invoice date or that are Accounts of an Account Debtor if 50% or more of the Accounts owing from such Account Debtor remain unpaid within such time periods;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) that has a due date of more than ninety (90) days from its invoice date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 law relating to bankruptcy, insolvency, reorganization or relief of debtors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) that arises from any pre-billing invoices, progress billing, bill-and-hold or other sale of goods which remain in such Borrower's possession or under Borrower's control;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) as to which Lender's interest therein is not a first priority perfected security interest and Lien;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) to the extent that such Account exceeds any credit limit established by Lender in Lender's good faith discretion;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) as to which any of Borrower's representations or warranties pertaining to Accounts are untrue;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) that represents interest payments, late or finance charges, or service charges owing to such Borrower;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 such Borrower qualifies to do business in such state or files a Notice of Business Activities Report or registration or licensing to carry on business or equivalent report, registration or licensing following such Account Debtor being delinquent in paying the amount due; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.

"**Eligible Inventory**" shall mean as at the date of determination, all Inventory of the Borrowers, including Inventory covered by commercial Letters of Credit, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) is located on premises in Canada or the United States owned or operated by Borrower and referenced in Disclosure Schedule (3.6) or is located on premises in Canada with respect to which Lender has received a landlord, bailee 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;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 purchase and transportation of such Inventory, including duty, freight, brokerage fees, insurance and other similar costs (all such amounts other than purchase price, the "**Clearance Costs**"), 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 such other arrangement that may be satisfactory to Lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) consists of (i) raw materials that are building materials including aluminum, hardware and millwork, willow glass, and plastics, or (iii) finished goods;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) is not placed by Borrower on consignment or held by Borrower on consignment from another Person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) is not held for rental or lease by or on behalf of Borrower;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) meets or does not violate any warranty, representation or covenant contained in this Agreement or any other Loan Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) is not subject to unpaid suppliers' repossession rights or retention of title claims; and

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.

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"**Eligible Investment Grade or Insured Accounts**" shall mean Eligible Accounts that are either: (i) payable by an Investment Grade Debtor; or (ii) insured with an insurer which is acceptable to Lender on terms satisfactory to Lender in its sole discretion.

"**Environmental Laws**" shall mean all federal, provincial, state, municipal and local 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.

"**EPA**" shall mean the Environmental Protection and Enhancement Act (Alberta) and the similar laws of Canada, the United States of America or any other country, including any province, state, territory or other political subdivision thereof where any Collateral may be located, and any successor law or statute, as in effect from time to time or at any time.

"**Equipment**" shall mean all "equipment" as defined in the PPSA (or with respect to property in the US, all "equipment" as defined in Article 9 of the UCC) 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.

"**Equivalent Amount**" shall mean the amount of U.S.$ to which any amount in $ is equivalent as determined by Lender based on its rate of exchange as determined at noon (Toronto time) on the date of determination.

"**ERISA**" shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder.

"**ERISA Affiliate**" shall mean any trade or business (whether or not incorporated) under common control with any Credit Party within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

"**ERISA Event"** shall mean (a) a Reportable Event with respect to a Plan, (b) a withdrawal by any Credit Party or any ERISA Affiliate from a Plan during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by any Credit Party or any ERISA Affiliate from a Multi-employer Plan or other Plan regulated or governed by other applicable legislation or notification that a Multi-employer Plan or Plan regulated or governed by or other applicable legislation is in reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA or other law, or the commencement of proceedings by the PBGC pursuant to Section 4042 of ERISA or other applicable Governmental Authority to terminate a Plan or to appoint a trustee to administer any Plan or Multi-employer Plan, or (e) the imposition of any liability under Title IV of ERISA or other applicable legislation (other than for PBGC premiums due but not

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delinquent under Section 4007 of ERISA or other similar legislation) upon any Credit Party or any ERISA Affiliate.

"**Event of Default**" shall have the meaning assigned to it in Section 7.1.

"**Existing Credit Facility**" shall mean the Credit Agreement dated July 19, 2019 between DIRTT Environmental Solutions Ltd. as Borrower, DIRTT Environmental Solutions, Inc. as Guarantor and Royal Bank of Canada, as lender, as amended, supplemented and restated from time to time.

"**FCCR Trigger**" means any time that (i) an Event of Default has occurred and is continuing or (ii) Net Borrowing Availability is less than $5,000,000.

"**Fees**" shall mean the fees due to Lender as set forth in Schedule E.

"**Field Examination**" shall have the meaning assigned to it in Section 6.2(c).

"**Field Examination Fees**" shall have the meaning assigned to it in Schedule E.

"**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 Year**" shall mean the twelve (12) month period of Borrower ending December 31<sup>st</sup> 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.

"**Fixed Charge Coverage Ratio**" shall mean with respect to the Canadian Borrower on a consolidated basis, the ratio of (i) Adjusted EBITDA for the most recently completed twelve month period <u>less</u> Cash Taxes actually paid during such twelve month period, Unfunded Capital Expenditures actually paid in such twelve month period, and Restricted Payments actually made in such twelve month period, plus, in each case without duplication, operating leases and rent, to (ii) Fixed Charges for the same period.

"**Fixed Charges**" means, with respect to any Person for any period and on a consolidated basis, the sum of (in each case, without duplication) (i) Total Interest Expense, (ii) all Indebtedness repayments required to be paid by such Person during such period, (iii) all amounts actually paid by such Person in respect of Capital Leases during such period, and (iv) all rent and other charges actually paid by such Person during such period with respect to all operating leases.

"**Floor**" means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to Term SOFR. For the avoidance of doubt, the initial Floor for Term SOFR shall be 0.00%.

"**Funded Debt**" shall mean, with respect to any Person, all of such Person's Indebtedness consisting of or relating to the borrowing of money or the obtaining of credit (other than trade payables incurred in the ordinary course of business).

"**Fx Contracts**" shall have the meaning assigned to it in Schedule H.

"**Fx Facility**" shall have the meaning assigned to it in Schedule H.

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"**Fx Reserve**" shall have the meaning assigned to it in Schedule H.

"**GAAP**" shall mean United States generally accepted accounting principles adopted by the United States Securities and Exchange Commission, including United States Accounting Standards and interpretations together with their accompanying documents which are set by the Financial Accounting Standards Board and the Emerging Issues Task Force, but only to the extend the same are adopted by the American Institute of Certified Public Accountants as generally accepted accounting principles in the United States and then subject top such modifications thereto as are agreed by the American Institute of Certified Public Accountants on a consistent basis**.** For greater certainty, for the purposes of this Agreement, including all financial calculations to be made hereunder, any lease accounted for as an "operating lease" as defined under U.S. GAAP shall be excluded from Capital Lease calculations.

"**Goods**" shall mean all "goods," as such term is defined in the PPSA (or with respect to property located in the United States, "Goods" as defined in the UCC) 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, 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.

"**Governmental Authority**" shall mean any nation or government, any state, provincial, territorial 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 any 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): (i) to purchase or repurchase any such primary obligation; (ii) to advance or supply funds (a) for the purchase or payment of any such primary obligation, or (b) 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; (iii) 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 (iv) 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 with the transactions contemplated by this Agreement.

"**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: (i) 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; (ii) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's); or (iii) any radioactive substance.

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"**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.

"**Indebtedness**" of any Person shall mean: (i) 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); (ii) all obligations evidenced by notes, bonds, debentures or similar instruments; (iii) 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); (iv) all Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi) all Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) 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 rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (vii) the Obligations.

"**Indemnified Liabilities**" and "**Indemnified Person**" shall have the meaning assigned to such terms in Section 1.12.

"**Instruments**" shall mean all "instruments," as defined in the PPSA (and with respect to property located in the United States, all "Instruments" as defined in the UCC) 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 with respect to any property located in the United States, all "General Intangibles" as defined in the UCC) and, in any event, includes intangible or incorporeal personal property, 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 moveable 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 Determination Date**" shall mean, with respect to any Revolving Credit Advances made based upon the Term SOFR Rate, the date which is two (2) Business Days before the first day of the Interest Period for the Term SOFR Rate applicable to such Revolving Credit Advance.

"**Interest Payment Date**" shall mean, with respect to Revolving Credit Advances made based upon the CDOR Rate or the Term SOFR Rate, the earlier of thirty (30) days from the Business Day of the proposed advance of such Revolving Credit Advance and the last day of the Interest Period applicable to such

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Revolving Credit Advance and, with respect to each Interest Period of more than 30 days, on each date that occurs at intervals of 30 days duration after the commencement of the Interest Period.

"**Interest Period**" shall mean, as to any Revolving Credit Advance made based upon the CDOR Rate or the Term SOFR Rate, the period (subject to market availability) commencing on the Business Day of the proposed advance of such Revolving Credit Advance or on the Continuation/Conversion Date on which such Revolving Credit Advance is converted into or continued as a Revolving Credit Advance based upon the Term SOFR Rate or the CDOR Rate, and ending on the date that is one (1) or three (3) months thereafter as selected by a Borrower in its Notice of Borrowing or Notice of Continuation/Conversion in the form attached hereto as Exhibit A, <u>provided</u> that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Interest Period shall commence on the date of an advance of or a conversion to a Revolving Credit Advance based upon the Term SOFR Rate or the CDOR Rate and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the next preceding Interest Period expires;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Interest Period pertaining to a Revolving Credit Advance made based upon the CDOR Rate or the Term SOFR Rate that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) no Interest Period shall extend beyond the Stated Expiry Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) no tenor that has been removed from this definition pursuant to Section 1.16 shall be available for specification in such Notice of Borrowing or interest election; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Interest Periods commencing on the same date for Revolving Credit Advances made based on the Term SOFR Rate that are part of the same Revolving Credit Advance shall be of the same duration.

"**Inventory**" shall mean all "inventory," as such term is defined in the PPSA (or with respect to property located in the United States, all "inventory" as such term is defined in the UCC), 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 a debtor of a Borrower whose long-term unsecured and unsubordinated indebtedness has been rated as follows by 2 of the 3 rating agencies below:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) S&P: <u>></u>BBB-

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Moody's: <u>></u>Baa3

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) DBRS: ≥ BBB-

"**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

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account, futures contract, commodity contract or commodity account and with respect to property located in the United States shall include "Investment Property" as such term is defined in the UCC.

"**Lender**" shall mean Royal Bank of Canada 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.

"**Letters of Credit**" shall mean any and all commercial, documentary or standby letters of credit issued at the request and for the account of a Borrower for which Lender has incurred Letter of Credit Obligations, and includes any letters of guarantee issued in the discretion of Lender.

"**Letter of Credit Fee**" shall have the meaning assigned to it in Schedule E.

"**Letter of Credit Obligations**" shall mean all outstanding obligations (including all duty, freight, taxes, costs, insurance and any other charges and expenses) incurred by Lender, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance or guarantee, by Lender or another, of Letters of Credit, all as further set forth in Schedule C.

"**Letter of Credit Sublimit**" shall mean $5,000,000, or the Equivalent Amount thereof in U.S.$.

"**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: (i) 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 the UCC, the Civil Code of Québec or comparable law of any jurisdiction); and (ii) 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 F, 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 (including Overdrafts and the Letter of Credit Obligations).

"**Material Adverse Effect**" shall mean a material adverse effect on:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the financial condition of the Borrowers and the other Credit Parties, taken as a whole;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the Borrowers' and the other Credit Parties' ability taken as a whole to perform their respective obligations under the Loan Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the property, business, operations, corporate governance or liabilities of the Borrowers and the other Credit Parties, taken as a whole; or

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) the priority ranking of any Collateral, or the rights or remedies intended or purported to be granted to the Lender under or pursuant to this Agreement or any other Loan Documents.

"**Margin Stock**" shall mean "margin stock" as such term is defined in Regulation T, U or X of the Board of Governors of the Federal Reserve System (or any successor thereto).

"**Material Contract**" shall mean any agreement to which any Credit Party is party which constitutes a guarantee in such Credit Party's favour or otherwise providing for any Lien on another Person's property, 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.

"**Maximum Amount**" shall mean $15,000,000 or the Equivalent Amount thereof in U.S.$.

"**Minimum Actionable Amount**" shall mean $500,000 or the Equivalent Amount thereof in U.S.$.

"**Miscellaneous Fees**" shall have the meaning assigned to it in Schedule E.

"**Multi-employer Plan**" shall mean a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by any Credit Party or any ERISA Affiliate.

"**Net Borrowing Availability**" shall mean at any time the Borrowing Availability less all outstanding Revolving Credit Loans, <u>plus</u>, for so long as the Borrowers do not have any Loans outstanding (excluding Letter of Credit Obligations which are fully cash collateralized in the manner set forth in Schedule C), unrestricted cash of the Borrowers in which Lender has a first priority perfected security interest. For greater certainty, upon delivery of the first Notice of Borrowing or first request for a Letter of Credit that is not cash collateralized under this Agreement, Net Borrowing Availability shall be recalculated to exclude the unrestricted cash of the Borrowers.

"**Net Income**" shall mean with respect to any Person for any period, the net revenue of such Person for such period on a consolidated basis, less all expenses and other charges not otherwise deducted in computing such net revenue for such period, determined in accordance with GAAP, but excluding extraordinary items as determined in accordance with GAAP, earnings resulting from any reappraisal, revaluation or other write-up of assets and gains arising from the repurchase of any equity security of such Person or any Subsidiary.

"**Notice of Borrowing**" shall have the meaning assigned to it in Section 1.1(b).

"**Notice of Continuation/Conversion**" shall have the meaning assigned to in Section 1.6(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 any Borrowers 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 including all such obligations and liabilities in respect of the RBC Lease Facility, Bank Products, Overdrafts and reimbursement obligations in respect of Letters of Credit. 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**" means the Office of Foreign Assets Control of the U.S. Department of the Treasury.

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"**Overdraft**" shall have the meaning assigned to it in Section 1.1(f).

"**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: (i) 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 territory thereof, or any other country; and (ii) all reissues, continuations, continuations-in-part or extensions thereof.

"**Payment Conditions**" shall mean that (a) no Default or Event of Default has occurred and is continuing or would result from any applicable action, (b) Net Borrowing Availability will be at least $10,000,000 on a pro forma basis after giving effect to the applicable action and on each of the thirty (30) consecutive calendar days immediately prior to such action on a pro forma basis after giving effect to the applicable action, (c) the Fixed Charge Coverage Ratio calculated on a trailing twelve month basis would be at least 1.10:1.00 on a pro forma basis as of the most recent Fiscal Month for which Financial Statements have been delivered in accordance with Section 4.1, and (d) the Borrowers shall have delivered a customary officer's certificate certifying as to compliance with the foregoing conditions and setting forth the calculations thereof in reasonable detail.

"**PBA**" shall mean the Pension Benefits Act (Ontario) and the similar laws of any other province or territory of Canada, as in effect from time to time or at any time.

"**PBGC**" shall mean the Pension Benefit Guaranty Corporation or any Governmental Authority succeeding to the functions thereof.

"**Pension Event**" shall mean: (i) 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; (ii) 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; (iii) the failure to make any contribution or remittance in respect of any Plan when due; (iv) the failure to file any report, actuarial valuation, return, statement or other document, when due, in respect of any Plan; (v) the existence of any Lien except in respect of current contribution amounts not due in connection with any Plan; (vi) the establishment or commencement to contribute to any Plan not in existence on the date thereof; or (vii) any violation of, or non-compliance with, any of the rules or regulations contained in the Employee Retirement Income Security Act of 1974 as same may be amended from time to time.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 impair Lender's rights and remedies under the Loan Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) the reservations, limitations, provisos and conditions, if any, expressed in any original grants from the Crown;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) (i) Purchase Money Liens securing Purchase Money Indebtedness to the extent permitted under Section 5.2(b)(vii), and (ii) Liens securing Capital Lease Obligations permitted under Section 5.2(b)(viii) so long as such Liens do not at any time extend to or cover any assets (except for replacements, additions and accessions to such assets) other than the assets subject to such Capital Leases and the proceeds and products thereof and customary security deposits; provided that individual financings of fixed

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assets provided by one lender may be cross collateralized to other financings of fixed assets provided by such lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) servicing agreements, development agreements, site plan agreements, and other agreements with governmental entities pertaining to the use or development of any of the 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) Liens granted by the Canadian Borrower to Upper Canada Forrest Products Ltd. that secure indebtedness owing by the Canadian Borrower to Upper Canada Forest Products Ltd. for the supply of goods, which Liens are subject to a subordination and postponement agreement, in form and substance satisfactory to the Lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) security in cash collateral in an aggregate amount of up to $1,000,000 granted to the issuer of credit cards in respect of corporate credit cards for the Borrowers and the other Credit Parties; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) such other Liens as are agreed to in writing by the Lender.

"**Permitted Investment**" any direct or indirect (i) acquisition of any shares, partnership interests, participation interests in any arrangement, options or warrants, or any indebtedness, whether or not evidenced by any bond, debenture or other written evidence of a Person, or (ii) acquisition, by purchase or otherwise, of all or substantially all of the business, assets or stock or other evidence of beneficial ownership of a Person. The amount of any Investment will be the original cost of such Investment, plus the cost of all additions thereto and minus the amount of any portion of such Investment repaid to such Person in cash as a return of capital, or repayment of the principal amount of indebtedness, as the case may be, but without any other adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. In determining the amount of any Investment involving a transfer of any property other than cash, such property will be valued at its fair market value at the time of such transfer.

"**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 (i) any employee pension benefit plan which a 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

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regulated by the FSCO or similar authority or otherwise subject to the PBA and (ii) any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Credit Party or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.

"**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 Alberta; provided, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, non-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 Alberta, 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.

"**Proceeds**" shall mean "proceeds," as such term is defined in the PPSA (and with respect to property located in the United States, "Proceeds" as defined in the UCC) 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: (i) any and all proceeds of any insurance, indemnity, warranty or guarantee payable to any Borrower or any other Credit Party from time to time with respect to any Collateral; (ii) any and all payments (in any form whatsoever) made or due and payable to any 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 governmental authority); (iii) any claim of any Borrower or any other Credit Party against third parties (a) for past, present or future infringement of any Intellectual Property or (b) 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; (iv) any recoveries by any Borrower or any other Credit Party against third parties with respect to any Litigation or dispute concerning any Collateral; and (v) any and all other amounts from time to time paid or payable under or in connection with any Collateral, upon disposition or otherwise.

"**Projections**" shall mean the projected consolidated and, when requested, consolidating, income statement, balance sheet, and statement of cash flows of Borrower and its Subsidiaries for any future period, including forecasted Capital Expenditures and Net Borrowing Availability.

"**Purchase Money Indebtedness**" shall mean: (i) any Indebtedness incurred for the payment of all or any part of the purchase price of any fixed asset; (ii) any Indebtedness incurred for the sole purpose of financing or refinancing all or any part of the purchase price of any fixed asset; (iii) any Indebtedness owing to a supplier incurred in the normal course of business for the sole purpose of financing all or any part of the purchase price of equipment provided no Lien is registered in respect to such Indebtedness and such Indebtedness is not overdue; and (iv) 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; provided that individual financings of fixed assets provided by one lender may be cross collateralized to other financings of fixed assets provided by such lender.

"**RBC Lease Facility**" shall mean all leasing arrangements which Royal Bank of Canada (or its Affiliates), as lessor, may provide to a Credit Party, as lessee, from time to time and all leasing schedules, supplements, exhibits and lease documentation related thereto (as from time to time amended, modified, restated, supplemented or replaced) and includes the leasing facilities described in Schedule I hereto.

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"**RBP**" shall mean, at any time, the rate of interest per annum equal to the rate which the principal office of Royal Bank of Canada in Toronto, Ontario quotes, publishes and refers to as its "prime rate" and which is its reference rate of interest for loans in Canadian Dollars to its borrowers in Canada, adjusted automatically with each quoted or published change in such rate, all without the necessity of any notice to the Borrowers or any other Person, <u>provided</u> that, if any such referenced rate is below zero, then the RBP shall be deemed to be zero.

"**RBUSBR**" and "**Royal Bank U.S. Base Prime Rate**" shall mean the annual rate of interest announced by Lender from time to time as being its reference rate in effect for determining interest rates on US Dollar commercial loans made by Lender in Canada <u>provided</u> that, if any such referenced rate is below zero, then the RBUSBR shall be deemed to be zero.

"**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.

"**Reportable Event**" means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30 day notice requirement under ERISA has been waived in regulations issued by the PBGC.

"**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 law, treaty, judgment, declaration, rule or regulation 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.

"**Reserve Account**" means an account which the Canadian Borrower maintains with the Lender, and which is under the control of the Lender, pursuant to the requirements of Section 5.1(b).

"**Restricted Payment**" shall mean:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 any Borrower's or any other Credit Party's Shares;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any payment or distribution made in respect of any subordinated Indebtedness of Borrower or any other Credit Party (excluding, so long as no Event of Default has occurred and is continuing, regularly scheduled payments of interest on Convertible Debentures) 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 (excluding the RBC Leasing Facility and, so long as no Event of Default has occurred and is continuing, regularly scheduled payments of interest on Convertible Debentures) 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

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in Disclosure Schedule (5.2(b)) or otherwise permitted under Section 5.2(b)(vii), (viii), (ix), and (xi); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 and no payment or transfer between Credit Parties shall constitute a Restricted Payment.

"**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: (i) the aggregate amount of Revolving Credit Advances then outstanding; (ii) the total Letter of Credit Obligations incurred by Lender and outstanding at such time; and (iii) the amount of accrued but unpaid interest thereon and Letter of Credit Fees with respect thereto.

"**Sanctioned Entity**" shall mean (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country sanctions program on the list maintained and published by OFAC and available at http://www.treas.gov/offices/enforcement/ofac/programs, or as otherwise published from time to time as such program may be applicable to such country, agency, organization or person.

"**Sanctioned Person**" means a person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/enforcement/ofac/sdn/index.html, or as otherwise published from time to time.

"**Shareholder**" shall mean each holder of Shares of any Borrower or any other Credit Party.

"**Shares**" shall mean all certificated and uncertificated shares, options, warrants, membership interests, units, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited partnership, unlimited liability company, 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 (Alberta) or any other applicable Canadian provincial legislation or regulations thereunder).

"**SOFR**" means a rate per annum equal to the secured overnight financing rate as administered by the SOFR Administrator.

"**SOFR Administrator**" means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).

"**SOFR Administrator's Website**" means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.

"SOFR Loan"

"**Solvent**" means, with respect to any Credit Party, that as of the date of determination, (a) the sum of such Credit Party's debt and other liabilities (including contingent liabilities) does not exceed the present fair saleable value of such Credit Party's present assets as of such date, (b) such Credit Party's capital is not unreasonably small in relation to its business as contemplated on such date or with respect to any transaction contemplated to be undertaken after such date, (c) such Credit Party has not incurred and does

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not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts and liabilities (including contingent liabilities) beyond its ability to pay such debts and liabilities as they become due (whether at maturity or otherwise) and (d) such Credit Party is "solvent" within the meaning given to that term and similar terms under applicable law relating to liquidation, administration, conservatorship, bankruptcy, insolvency, assignment for the benefit of creditors, moratorium, receivership, winding-up, dissolution, reorganization, restructuring, recapitalization, arrangement or rearrangement, or other similar debtor relief law from time to time in effect, including without limitation the Bankruptcy and Insolvency Act (Canada), the CCAA, the Canada Business Corporations Act (Canada), the Corporations Act 2001 (Cth), the Bankruptcy Act 1966 (Cth) and the Bankruptcy Code and applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under GAAP).

"**Stated Expiry 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), February 12, 2024.

"**Subsidiary**" shall mean, with respect to any Person: (i) 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 (ii) 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.

"**Taxes**" shall mean any and all present or future taxes, duties, levies, imposts, deductions, Charges withholdings, value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax, penalties or other liabilities with respect thereto, but excluding taxes imposed on or measured by the net income of Lender.

"**Term SOFR Administrator**" means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Lender in its reasonable discretion).

"**Term SOFR Adjustment**" shall mean, with respect to Term SOFR, 0.10% (10 basis points) for an Interest Period of one-month's duration and 0.15% (15 basis points) for an Interest Period of three-month's duration.

"**Term SOFR Determination Day**" has the meaning assigned to it under the definition of Term SOFR Rate.

"**Term SOFR Rate**" means, for any Interest Period for a SOFR Loan, the greater of (a) the Term SOFR Reference Rate (rounded upward to the next one-sixteenth (1/16th) of one percent (0.0625%), if necessary) for a tenor comparable to the applicable Interest Period on the day (the "**Term SOFR Determination Day**") that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator and (b) the Floor; provided, however, that if as of 5:00 p.m. (New York City time) on any Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government

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Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Term SOFR Determination Day.

"**Term SOFR Reference Rate**" means the forward-looking term rate based on SOFR.

"**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, issue Letters of Credit or otherwise extend or continue any credit hereunder (whether due to the Stated Expiry Date or otherwise pursuant to the terms hereof).

"**Total Interest Expense**" means, with respect to any Person for any period, without duplication, the aggregate amount of interest and other financing charges expensed by such Person on account of such period with respect to Funded Debt including interest, discount financing fees, commissions, discounts, the interest or time value of money component of costs related to factoring or securitizing receivables or monetizing inventory and other fees and charges payable with respect to letters of credit, letters of guarantee and bankers' acceptance financing, standby fees, the interest component of Capital Leases and net payments (if any) pursuant to hedge arrangements involving interest, but excluding any amount, such as amortization of debt discount and expenses, that would qualify as Depreciation Expense and the amount reflected in Net Income for such period in respect of gains (or losses) attributable to translation of Funded Debt from one currency to another currency, all as determined on a consolidated basis in accordance with Applicable Accounting Standards

"**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: (i) 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 (ii) all reissues, extensions or renewals thereof.

"**UCC**" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, "**UCC**" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

"**Unfunded Capital Expenditures**" means the amount of all Capital Expenditures of the Borrower and its Subsidiaries for the immediately preceding twelve month period, less any Capital Expenditures during such twelve month period that are funded by cash reserves identified by the Borrower for such purpose from the incurrence of Funded Debt (other than advances under this Agreement but, for certainty, including the Convertible Debentures) or the issuance of Shares in the immediately prior twenty four month period.

"**United States**" and "**U.S.**" mean the United States of America.

"**Unused Line Fee**" shall have the meaning assigned to it in Schedule E.

"**U.S. Dollars**" or "**U.S.$**" shall mean the lawful currency of the United States of America.

"**U.S. Government Securities Business Day**" means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed

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income departments of its members be closed for the entire day for purposes of trading in United States government securities.

"**U.S. Security Agreement**" means that certain Security Agreement, dated as of February 12, 2021, by and among the U.S. Borrower, the Canadian Borrower and the Lender.

"**US Borrower**" means DIRTT Environmental Solutions, Inc., a corporation organized under the laws of the State of Colorado, together with its successors and assigns.

"**Visa Facility**" shall have the meaning assigned to it in Schedule H.

"**Visa Facility Agreements**" shall have the meaning assigned to it in Schedule H.

"**Visa Limit**" shall have the meaning assigned to it in Schedule H.

"**Visa Reserve**" shall have the meaning assigned to it in Schedule H.

"**Withdrawal Liability**" shall mean liability to a Multi-employer Plan as a result of a complete or partial withdrawal from such Multi-employer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

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. 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 with respect to property in Canada, and the UCC with respect to property located in the United States. 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.

For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural; (b) the term "or" is not exclusive; (c) the term "including" (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes, acts and related regulations shall include any amendments of same and any successor statutes and regulations; (e) 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; (f) 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 (g) all references to "$" dollars or amounts of currency shall unless otherwise expressly provided mean lawful currency of Canada.

The Lender does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the continuation of, the administration of, submission of, calculation of, performance of or any other matter related to any interest rate used in this Agreement (including, without limitation, the Term SOFR Rate) or any component definition thereof or rates referred to in the definition thereof, or with respect to any alternative or successor rate thereto, or replacement rate thereof (including any Benchmark Replacement), including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, or have the same value or economic equivalence of the existing interest rate (or any component thereof) being

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replaced or have the same volume or liquidity as did any existing interest rate (or any component thereof) prior to its discontinuance or unavailability. The Lender and its affiliates and/or other related entities may engage in transactions that affect the calculation of any interest rate (or component thereof) used in this Agreement or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Lender may select information sources or services in its reasonable discretion to ascertain any interest rate used in this Agreement, any component thereof, or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.

The Credit Parties confirm and agree that for purposes of any Collateral located in the Province of Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other purposes pursuant to which the interpretation or construction of a Loan Document may be subject to the laws of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province of Québec: (a) "personal property" shall be deemed to include "movable property"; (b) "real property" shall be deemed to include "immovable property"; (c) "tangible property" shall be deemed to include "corporeal property"; (d) "intangible property" shall be deemed to include "incorporeal property"; (e) "security interest" and "mortgage" shall be deemed to include a "hypothec"; (f) all references to filing, registering or recording under the UCC or the PPSA shall be deemed to include publication under the Civil Code of Québec; (g) all references to "perfection" of or "perfected" Liens shall be deemed to include a reference to the "opposability" of such Liens to third parties; (h) any "right of offset", "right of setoff" or similar expression shall be deemed to include a "right of compensation"; (i) "goods" shall be deemed to include "corporeal movable property" other than chattel paper, documents of title, instruments, money and securities; and (j) an "agent" shall be deemed to include a "mandatary".

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**SCHEDULE B**

**LENDER'S AND BORROWER'S ADDRESSES FOR NOTICES**

**Lender's Address:**

200 Bay Street

Royal Bank Plaza

13<sup>th</sup> Floor, South Tower

Toronto, Ontario

M5J 2J5

Attention: Portfolio Manager

E-MAIL: [\*\*\*]

**Lender's Address for Borrowing Notices:**

20 King Street West, 4<sup>th</sup> Floor<br>Toronto, Ontario<br>M5H 1C4<br>Attention: Operations, Asset Based Lending Group

**Borrowers Address:**

7303 30<sup>th</sup> Street SE

Calgary, Alberta

T2C 1N6

Attention: Chief Financial Officer

Facsimile No.: 403-723-5000

With Copies to:

Bennett Jones LLP

4500, 855 – 2<sup>nd</sup> Street SW

Calgary, Alberta

T2P 4K7

Attention: Denise Bright

E-MAIL: [\*\*\*]

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**SCHEDULE C**

**LETTERS OF CREDIT**

1. Lender agrees, subject to the terms and conditions hereinafter set forth, to incur Letter of Credit Obligations in respect of the issuance of Letters of Credit issued on terms acceptable to Lender and supporting obligations of a Borrower incurred in the ordinary course of such Borrower's business, in order to support the payment of such Borrower's inventory purchase obligations, capital asset acquisitions, insurance premiums, or utility or other operating expenses or to support a Borrower's obligations under a contract for performance and obligations, and, in the case of any letters of guarantee, for such purposes as Lender may agree in its sole discretion, as Borrower shall request by written notice to Lender that is received by Lender not less than five (5) Business Days prior to the requested date of issuance of any such Letter of Credit; provided, that: (a) the aggregate amount of all Letter of Credit Obligations at any one time outstanding (whether or not then due and payable) shall not exceed the Letter of Credit Sublimit; (b) no Letter of Credit shall have an expiry date which is later than the Stated Expiry Date or one year following the date of issuance thereof unless otherwise agreed by the Lender; (c) all letters of guarantee shall be and shall be continued in the sole discretion of Lender; and (d) Lender shall be under no obligation to incur any Letter of Credit Obligation if after giving effect to the incurrence of such Letter of Credit Obligation, the Net Borrowing Availability would be less than zero. A Borrower will enter into an application and agreement for each such Letter of Credit.

2. The notice to be provided to Lender requesting that Lender incur Letter of Credit Obligations shall be in the form of a Letter of Credit application in the form customarily employed by Lender, together with a written request by Borrower.

3. In the event that Lender shall make any payment on or pursuant to any Letter of Credit Obligation, Borrowers shall be unconditionally obligated to reimburse Lender therefor, and such payment shall then be deemed to constitute a Revolving Credit Advance. For purposes of computing interest under Section 1.5, a Revolving Credit Advance made in satisfaction of a Letter of Credit Obligation shall be deemed to have been made as of the date on which Lender makes the related payment under the underlying Letter of Credit. Each Borrower hereby irrevocably authorizes Lender to debit the respective Canadian or any other bank account (including any deposit, disbursement or operating account) of the Borrowers for the purpose of paying all amounts due by the Borrowers from time to time for each drawing under any Letter of Credit, including all charges and fees pursuant to such issuance or amendment.

4. In the event that any Letter of Credit Obligations, whether or not then due or payable, shall for any reason be outstanding on the Commitment Termination Date, Borrowers will either: (a) cause the underlying Letter of Credit to be returned and cancelled and each corresponding Letter of Credit Obligation to be terminated; or (b) pay to Lender, in immediately available funds, an amount equal to 110% of the maximum amount then available to be drawn under all Letters of Credit not so returned and cancelled to be held by Lender as cash collateral in an account under the exclusive dominion and control of Lender (the "**Cash Collateral Account**").

5. In the event that Lender shall incur any Letter of Credit Obligations, Borrowers agree to pay the Letter of Credit Fee to Lender as compensation to Lender for incurring such Letter of Credit Obligations.

6. Borrowers' Obligations to Lender with respect to any Letter of Credit or Letter of Credit Obligation shall be evidenced by Lender's records and shall be absolute, unconditional and irrevocable and shall not be affected, modified or impaired by: (a) any lack of validity or enforceability of the transactions contemplated by or related to such Letter of Credit or Letter of Credit Obligation; (b) any amendment or waiver of or consent to depart from all or any of the terms of the transactions contemplated by or related to such Letter of Credit or Letter of Credit Obligation; (c) the existence

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of any claim, set-off, defense or other right which Borrower or any other Credit Party may have against Lender or the beneficiary of such Letter of Credit, or any other Person, whether in connection with this Agreement, any other Loan Document or such Letter of Credit or the transactions contemplated thereby or any unrelated transactions; or (d) the fact that any draft, affidavit, letter, certificate, invoice, bill of lading or other document presented under or delivered in connection with such Letter of Credit or any other Letter of Credit proves to have been forged, fraudulent, invalid or insufficient in any respect or any statement therein proves to have been untrue or incorrect in any respect.

7. In addition to any other indemnity obligations which Borrowers may have to Lender under this Agreement and without limiting such other indemnification provisions, each Borrower hereby jointly and severally agrees to indemnify Lender from and to hold Lender harmless against any and all claims, liabilities, losses, costs and expenses (including, legal fees and expenses) which Lender may (other than as a result of its own gross negligence or wilful misconduct) incur or be subject to as a consequence, directly or indirectly, of: (a) the issuance of or payment of or failure to pay under any Letter of Credit or Letter of Credit Obligation; or (b) any suit, investigation or proceeding as to which Lender is or may become a party as a consequence, directly or indirectly, of the issuance of any Letter of Credit, the incurring of any Letter of Credit Obligation or any payment of or failure to pay under any Letter of Credit or Letter of Credit Obligation provided that the Borrowers shall have no obligation to indemnify the Lender if the Lender makes payment in violation of the terms and conditions set forth in the Letter of Credit. The obligations of each Borrower under this paragraph shall survive any termination of this Agreement and the payment in full of the Obligations.

8. Each Borrower hereby assumes all risks of the acts, omissions or misuse of each Letter of Credit by the beneficiary thereof and, in connection therewith, Lender shall not be responsible for: (a) the validity, sufficiency, genuineness or legal effect of any document submitted in connection with any drawing under any Letter of Credit even if it should in fact prove in any respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged; (b) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or any rights or benefits thereunder or any proceeds thereof, in whole or in part, even if it should prove to be invalid or ineffective for any reason; (c) the failure of any beneficiary of any Letter of Credit to comply fully with the terms thereof, including the conditions required in order to effect or pay a drawing thereunder; (d) any errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, telecopy, telex or otherwise; (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a drawing under any Letter of Credit; or (f) any consequences arising from causes beyond the direct control of Lender.

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**SCHEDULE D**

**CASH MANAGEMENT SYSTEM**

Each Borrower agrees to establish, and to maintain, until the Termination Date, the cash management system described below (subject to the post-closing covenant regarding accounts as set forth in Section 3.24):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. No Credit Party: (i) 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 Lender or as permitted by Lender in its sole discretion and as identified in Attachment 1 hereto; and (ii) 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 Lender or bank or financial institution acceptable to Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Attachment 1 is a complete list of all accounts currently held by the Borrowers and Guarantors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. 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 Borrowers, 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 Borrowers' 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 Borrowers' own funds and immediately deposited or transfered 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**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. The Borrowers shall execute and deliver to Lender, Lender's standard form Blocked Accounts agreement ("**Blocked Accounts Agreement**"), the receipt of which is a condition precedent to any accommodation of credit hereunder. During a Cash Dominion Period, Lender is hereby irrevocably and unconditionally authorised and directed by Borrower, in Lender's discretion, to sweep the Blocked Accounts on a daily basis and to set-off, compensate and apply any credit balances in the Blocked Accounts (after conversion into Canadian Dollars or U.S. Dollars, as applicable, as determined necessary by Lender) to repay any Obligations in such order as Lender sees fit or to be held by Lender as cash collateral, with any remaining funds then being deposited to the Borrowers' disbursement accounts with Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Where the perfection of the security interest of Lender in any Account or deposit in any Account, is governed by the UCC, and such account is identified as "Blocked" on Attachment 1, such Borrower shall ensure that at all times Lender has "control" of such Accounts or deposits in accounts under the UCC pursuant to the applicable Blocked Accounts Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. Each Borrower may maintain, in its name, accounts (the "**Disbursement Accounts**") at Lender or at an Affiliate of Lender acceptable to Lender into which Lender shall, from time to time, deposit proceeds of Revolving Credit 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. Upon the request of Lender following a Cash Dominion Period, each Credit Party shall forward to Lender, on a daily basis, evidence of the deposit or transfer 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.

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**ATTACHMENT 1 TO SCHEDULE D**

**LIST OF BANK ACCOUNTS**

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp;**Bank** | &nbsp;&nbsp;**Bank Address** | &nbsp;&nbsp;**Account Name** | &nbsp;&nbsp;**Account #** | &nbsp;&nbsp;**Transit/**<br>**Routing #** | &nbsp;&nbsp;**Currency** | &nbsp;&nbsp;**Account Type** |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions Ltd. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;CDN | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;CDN | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions Ltd. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions Ltd. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;CDN | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions Ltd. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |  |

---

------

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp;Royal Bank of Canada | &nbsp;&nbsp;Main Branch - Calgary | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;339 8th Ave SW |  |  |  |  |
|  | &nbsp;&nbsp;Calgary, AB T2P 1C4 |  |  |  |  |
| &nbsp;&nbsp;City National Bank | &nbsp;&nbsp;555 S. Flower St. | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;Los Angeles, CA 90071 |  |  |  |  |
| &nbsp;&nbsp;City National Bank | &nbsp;&nbsp;555 S. Flower St. | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;Los Angeles, CA 90071 |  |  |  |  |
| &nbsp;&nbsp;City National Bank | &nbsp;&nbsp;555 S. Flower St. | &nbsp;&nbsp;DIRTT Environmental Solutions, Inc. | &nbsp;&nbsp;[\*\*\*] | &nbsp;&nbsp;USD | &nbsp;&nbsp;[\*\*\*] |
|  | &nbsp;&nbsp;Los Angeles, CA 90071 |  |  |  |  |

---

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**SCHEDULE E**

**FEES**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. **Unused Line Fee:** For each day from the Closing Date, and through and including the Commitment Termination Date, the Borrowers, jointly and severally, shall pay to Lender an amount equal to the Maximum Amount less the aggregate of: (a) the aggregate amount of Revolving Credit Advances outstanding at the end of each day; and (b) the total Letter of Credit Obligations incurred by Lender and outstanding at the end of each day, multiplied by 0.40% and divided by 365 or 366, as applicable, depending on the actual number of days in the year in respect of the period for which the Unused Line Fee is payable. The Unused Line Fee for each month (except for the month in which the Commitment Termination Date occurs) is payable in arrears on the first day of each calendar month following the Closing Date; the final monthly instalment of the Unused Line Fee is payable on the Commitment Termination Date. Notwithstanding the foregoing, any unpaid Unused Line Fee is immediately due and payable on the Commitment Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. **Letter of Credit Fee:** For each day for which Lender maintains Letter of Credit Obligations outstanding, an amount equal to the amount of the Letter of Credit Obligations outstanding on such day, multiplied by a percentage to be determined at the time of issuance. The Letter of Credit Fee is payable quarterly in advance and any out of pocket fees incurred by Lender with respect to a Letter of Credit are payable on the date of issue of such Letter of Credit. Notwithstanding the foregoing, any unpaid Letter of Credit Fee is immediately due and payable on the Commitment Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. **Closing Fee:** A fully earned non-refundable closing fee of $75,000.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. **Collateral Monitoring Fee:** A fully earned and non-refundable collateral monitoring fee of $1,000 per month, payable in advance beginning on the Closing Date and on the first day of each month thereafter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. **Field Examination Fees**: Borrower will reimburse Lender for Lender's standard charges in respect of audit reviews, field examinations and collateral examinations, including the standard charges of the Lender's internal field examination group (currently $1,200 per person per day**)**, and all reasonable out of pocket expenses incurred in connection therewith and applicable taxes. This shall not be construed to limit Lender's right to use third parties for such purposes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. **Appraisal Fees**: Borrower will reimburse Lender for all out of pocket expenses incurred by Lender in connection with the appraisals of Inventory conducted for Lender by an appraisal firm acceptable to Lender.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. **Miscellaneous Fees:** Borrower shall be liable for all of Lender's customary miscellaneous fees for activities undertaken by Lender, including additional uploads, amendments, waivers and other matters.

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**SCHEDULE F**

**SCHEDULE OF DOCUMENTS**

The obligation of Lender to make the initial Revolving Credit 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:

**<u>PRINCIPAL LOAN DOCUMENTS</u>**

1. <u>Loan Agreement.</u> The Loan Agreement duly executed by Borrower and the other Credit Parties party thereto.

2. <u>Borrowing Base Certificate.</u> An original Borrowing Base Certificate duly executed by an Authorized Officer of Borrower.

3. <u>Notice of Borrowing.</u> An original Notice of Borrowing duly executed by an Authorized Officer of Borrower.

**<u>COLLATERAL DOCUMENTS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Acknowledgement Copies of Financing Statements.</u> Acknowledgement copies of proper financing statements and notices of recording under the PPSA, the applicable UCC and Civil Code of Quebec, as applicable, duly filed in all jurisdictions as may be necessary or, in the opinion of Lender, desirable to perfect Lender's Lien on the Collateral in which a security interest may be perfected by filing a financing statement or a notice of recording, as applicable, pursuant to the PPSA, the UCC or the Civil Code of Quebec, as applicable.

2. <u>Searches.</u> Certified copies of PPSA, UCC, and as applicable, Register of Personal and Movable Real Rights of Quebec, Bank Act, insolvency, executions, litigation, or other jurisdictional searches, as applicable, or other evidence satisfactory to Lender, listing all effective, registrations, financing statements and recordations which name the Credit Parties (under present name, any previous name or any trade or doing business name) as debtor and together with copies of such other recordings, registrations and financing statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>GSAs/Hypothecs/Bank Act Security/US Security Agreement.</u> 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). Each Borrower shall also grant security to Lender under section 427 of the Bank Act (Canada) in form and substance satisfactory to Lender. The U.S. Borrower shall execute and deliver to Lender the U.S. Security Agreement.

4. <u>Mortgage</u>. Subject to Section 3.25, Mortgage, security agreement, financing statement, fixture fling and assignment of rents to be granted by the US Borrower in favour of the Lender with respect to the property known municipally as 325 North Wells St. Unit 1000 Chicago, Illinois Cook County, with a Tax Parcel No. 17-09-405-007-1002.

5. <u>Guarantee</u>. A guarantee agreement executed by each Borrower and each of the Guarantors in favour of Lender whereby such Credit Parties guarantee all of the Obligations of the other Credit Parties.

6. <u>Intellectual Property Documents.</u> 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.

------

7. <u>Other Recordings and Filings.</u> 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).

**<u>THIRD PARTY AGREEMENTS</u>**

1. <u>Landlord and Mortgagee Consents</u>. Unless otherwise agreed to in writing by Lender, duly executed landlord, bailee and mortgagee waivers and consents from the landlords, bailees 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. <u>Cash Management System.</u> Duly executed Blocked Accounts Agreement as contemplated by Schedule D.

3. <u>Subordination Agreements.</u> The subordination agreement executed by Upper Canada Forest Products Ltd. in favour of the Lender.

**<u>OTHER DOCUMENTS</u>**

1. <u>Environmental Audit.</u> Lender's standard form environmental questionnaire and copies of all existing environmental reviews and audits and other information pertaining to actual or potential environmental claims relating to the Collateral and the Credit Parties, as Lender may require.

2. <u>Insurance Policies.</u> Originals or copies of certificates of insurance described in Section 3.16, together with evidence showing loss payable or additional insured clauses or endorsements in favour of Lender.

3. <u>Existing Lease Agreements</u>. 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.

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**SCHEDULE G**

**MATERIAL CONTRACTS**

**DIRTT Environmental Solutions Ltd.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. Lease between PIRET (7303-30th STREET SE) HOLDINGS INC. and DIRTT Environmental Solutions Ltd. dated September 15, 2012, as amended by a lease amending agreement dated April 27, 2022

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. Lease between Dream Industrial Twofer (GP) Inc. (formerly known as Dundee Industrial Twofer (GP) Inc.) and DIRTT Environmental Solutions Ltd. dated November 5, 2013, as amended by a lease amending agreement dated October 21, 2016, and a lease amending agreement dated February 14, 2022

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. Lease between HOOPP REALTY INC./LES IMMEUBLES HOOPP INC., by its duly authorized agent, Triovest Realty Advisors Inc., and DIRTT Environmental Solutions Ltd. dated February 12, 2015, as amended by a lease amending agreement dated April 16, 2015, a lease modification agreement dated October 27, 2015, a lease amending agreement dated November 12, 2015, a lease amending agreement dated January 8, 2016, and a lease amending agreement dated August 9, 2019

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. Master Lease Agreement between Royal Bank of Canada and DIRTT Environmental Solutions Ltd., dated May 4, 2020

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. Convertible unsecured subordinated note indenture dated January 25, 2021 between the Canadian Borrower, Computershare Trust Company of Canada and Computershare Trust Company, N.A., as amended, supplemented and modified from time to time.

**DIRTT Environmental Solutions, Inc.** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. Lease between EastGroup Properties, L.P. and DIRTT Environmental Solutions, Inc. dated March 29, 2011, and as amended by a lease amending agreement dated September 30, 2021

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. Lease between GFP Alliance Phoenix, LLC (successor in interest to Majik Ventures, L.L.C and CAM Investment 352 LLC) and DIRTT Environmental Solutions, Inc. dated July 1, 2015, as amended by a first amendment to lease dated May 11, 2017

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. Lease between SH7-Savannah, LLC (successor in interest to 141 Knowlton Way, LLC) and DIRTT Environmental Solutions, Inc. dated October 2, 2008, as amended by a first amendment to industrial lease agreement dated March 11, 2009, and a second amendment to industrial lease agreement dated August 23, 2018

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. Lease between Tennyson Campus Owner, LP and DIRTT Environmental Solutions, Inc. dated March 4, 2020, as amended by a first amendment to lease dated May 8, 2020, and as amended by a second amendment to lease dated November 1, 2021

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. Lease between STAG Industrial Holdings, LLC (successor in interest to SP Rock Hill Legacy East #1, LLC) and DIRTT Environmental Solutions, Inc. dated October 7, 2019, as amended by a first amendment lo lease dated December 2, 2019, a second amendment to lease dated July 6, 2020, and a notice of conveyance of lease dated November 12, 2020

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**11.** Master Lease Agreement between First American Commercial Bancorp, Inc. and DIRTT Environmental Solutions, Inc. dated April 30, 2020

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**SCHEDULE H**

**BANK PRODUCTS**

A. Visa Facility

Provided that Lender will make a corporate visa credit card facility (the "**Visa Facility**") available to Borrowers in such amounts as agreed to in writing by Lender in its sole and absolute discretion (the "**Visa Limit**"), subject to the following terms and conditions:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) notwithstanding any other provision of this Agreement, the Visa Facility is payable on demand and Lender may cancel or restrict the availability of the Visa Facility, or any unutilized portion thereof, at any time in its sole and absolute discretion. The Visa Limit may be reserved, dollar for dollar, from the Borrowing Availability (the **"Visa Reserve"**);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) the Visa Facility will be governed by separate agreements entered into between the applicable Borrower and Lender (collectively, the "**Visa Facility Agreements**") and, in the event of a conflict between the terms and conditions of this Agreement and the Visa Facility Agreements, the terms and conditions of the Visa Facility Agreements will govern and prevail to the extent of such conflict; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the Visa Facility shall form part of the Obligations secured by all of Lender's security.

B. Foreign Exchange Facility

Provided that no Event of Default has occurred, Lender may at its sole option and discretion, upon a Borrower's written request, enter into foreign exchange transactions, agreements or options ("**Fx Contracts**") with such Borrower from time to time on terms and conditions to be negotiated on a transaction-by-transaction basis (the "**Fx Facility**"). Lender makes no commitment to enter into or arrange any Fx Contracts with a Borrower and may at any time, in its sole and absolute discretion, decline to enter into or terminate any Fx Contracts. In the event that a Borrower requests, and Lender agrees, to enter into any such Fx Contracts with such Borrower, it will do so subject to the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) in no event, shall the "credit exposure" of the Fx Facility, as determined by Lender from time to time in its discretion, exceed such amounts as agreed to in writing by Lender in its sole and absolute discretion. Such Fx "credit exposure" may be reserved, dollar for dollar, from the Borrowing Availability (the "**Fx Reserve**");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) the applicable Borrower shall promptly issue or countersign and return a confirmation or acknowledgement of the terms of each such Fx Contract as required by Lender;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) the applicable Borrower shall, if required by Lender, promptly enter into a Foreign Exchange and Options Master Agreement or such other agreement, in form and substance satisfactory to Lender, to govern such Fx Contracts;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) in the event of demand for payment concerning any Fx Contracts, Lender may terminate all or any other Fx Contracts at its sole option and discretion. If the agreement governing any such Fx Contracts does not contain provisions governing termination, any such termination shall be effected in accordance with customary market practice applied by Lender from time to time. Lender's determination of amounts owing under any terminated Fx Contracts shall be conclusive evidence of the amounts owing thereunder, absent manifest error;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) Lender shall apply any amount owing by Lender to the applicable Borrower on termination of any such Fx Contracts against the applicable Borrower's obligations to

------

Lender and any amount owing by such Borrower to Lender on such termination shall form part of the Obligations secured by all of Lender's security;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the applicable Borrower shall pay all required fees in connection with any such Fx Contracts and both Borrowers jointly and severally indemnify and hold Lender harmless from and against any and all losses, costs and expenses incurred by Lender in relation to any Fx Contracts, including, without limitation, the costs of terminating or cancelling any Fx Contracts;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) any rights of Lender in respect of any such Fx Contracts are in addition to and not in limitation of, or substitution for, any rights of Lender under any agreement governing such Fx Contracts. In the event that there is any inconsistency at any time between the terms hereof and any agreement governing such Fx Contracts, the terms of such agreement governing such Fx Contracts shall prevail to the extent of such inconsistency; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) each Borrower hereby covenants and agrees to report the outstanding amounts of any and all Fx Contracts to Lender in its Borrowing Base Certificate required to be delivered to Lender on a weekly basis.

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**SCHEDULE I**

**RBC LEASE FACILITY**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The master lease agreement between the Canadian Borrower and the Lender dated May 4, 2020, as the same may be amended, modified, varied, restated or replaced from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. The master lease agreement no. 20200687 dated April 30, 2020 entered into by the Borrower and First American Commercial Bancorp, Inc., as the same may be amended, modified, varied, restated or replaced from time to time.

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**SCHEDULE J**

**POST-CLOSING UNDERTAKINGS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. On or before February 26, 2021 (or such later date as the Lender may agree to in writing in its sole discretion), the Lender shall have received the following in form an substance reasonably satisfactory to the Lender:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. Mortgage, security agreement, financing statement, fixture fling and assignment of rents granted by the US Borrower in favour of the Lender with respect to the property known municipally as 325 North Wells St. Unit 1000 Chicago, Illinois Cook County, with a Tax Parcel No. 17-09-405-007-1002 (the "**Mortgaged Property**");

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. fully-paid valid title insurance with endorsements and in amounts reasonably acceptable to the Lender, insuring that the Lender shall have a perfected first priority Lien on the Mortgaged Property;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c. Opinion of Illinois counsel to the US Borrower in respect of the mortgaged on the Mortgaged Property

------

**EXHIBIT A**

FORM OF NOTICE OF BORROWING OR CONTINUATION/CONVERSION

**(Letter to be typed on a Borrower's Letterhead)**

**[DATE]**

Royal Bank of Canada

20 King Street West, 4<sup>th</sup> Floor

Toronto, Ontario M5H 1C4

Attention: Operations Group

FAX: [\*\*\*]

E-MAIL: [\*\*\*]

<u>cc:</u>

Attention: Portfolio Manager

E-MAIL: [\*\*\*]

**BORROWING NOTICE**

We refer to the loan agreement dated as of February 12, 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 Loan Agreement), DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a "**Borrower**", and collectively the "**Borrowers**"), each other Credit Party executing same and Royal Bank of Canada ("**Lender**").

We hereby instruct and authorize Lender to **[make advances] [continue/ convert an outstanding loan]** 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 the Borrowers' loan account with each such **[advance(s)] [continuation(s)/ conversion(s)]**.

The Borrower hereby requests **[an advance] [the continuation/ conversion of an outstanding loan]** (the "**Advance**") be made as follows:

**A. Date of Advance:** _________________

**B. Type/ amount of Advance to be made:**

RBP based Advance (CAD$): __________________

RBUSBR based Advance (U.S.$): __________________

CDOR Rate based Advance (CAD$): __________________

Term SOFR Rate based Advance (U.S.$): __________________

**C. [Type of Advance resulting from the conversion or continuation (if applicable):** 

**RBP based Advance (CAD$): __________________**

------

**RBUSBR based Advance (U.S.$): __________________**

**CDOR Rate based Advance (CAD$): __________________**

**Term SOFR Rate based loan (U.S.$): __________________]**

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

CAD$ #________________________

U.S.$#________________________

**E. Duration of the Interest Period (for Advances based upon the CDOR Rate or the Term SORF Rate):** __________________ **[1 or 3 months]**

**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 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:** __________________

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| | |
|:---|:---|
| &nbsp;&nbsp;By: | &nbsp;&nbsp;c/s |

---

Name:

Title:

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**<u>EXHIBIT B</u>**

**<u>FORM OF BORROWING BASE CERTIFICATE</u>**

I, the Authorized Officer of DIRTT Environmental Solutions Ltd. ("**Borrower**") hereby certify as of , 20:

1. I am familiar with and have examined the provisions of the loan agreement (the "**Agreement**") dated February 12, 2021, DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a "**Borrower**", and collectively the "**Borrowers**") and Royal Bank of Canada ("**Lender**") and have made reasonable investigations of records and inquiries of other officers and senior personnel of Borrower. Terms defined in the Agreement have the same meanings where used in this certificate.

2. The Net Borrowing Availability is **$**, calculated as follows:

U.S.$ exchange rate at  (Bank of Canada noon rate for , 20)

**[Table of Calculations to be inserted here]**

3. The reports and information provided herewith are accurate and complete in all respects and all amounts included as potential prior ranking claims are current amounts owing and not in arrears **[indicate any claims that are past due other than those specifically noted]**.

Dated this  day of , 20.

Per:_________________________

Authorized Officer

------

**POTENTIAL PRIOR RANKING CLAIMS**

**CAD$** 

GST _____________

HST _____________

PST/QST _____________

employee source deductions _____________

(including EI, CPP and taxes)

past due employer health tax _____________

past due workers' compensation _____________

WEPPA reserve ($2,000/full time employee;

$1,000/part time employee) _____________

RRSP (employee contributions) _____________

pension plan contributions _____________

rent _____________

[realty/municipal taxes if owned real estate] _____________

other _____________

 **total _____________** 

**number of full time employees: _____________** 

**number of part time employees: _____________**

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**ATTACHMENT "1"TO EXHIBIT B**

**ACCOUNTS RECEIVABLE ROLL FORWARD**

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| | | |
|:---|:---|:---|
|  | &nbsp;&nbsp;**CAD$** | &nbsp;&nbsp;**U.S.$** |
| &nbsp;&nbsp;total accounts receivable as of last Borrowing Base Certificate dated ______ |  |  |
| &nbsp;&nbsp;gross sales invoiced (+) |  |  |
| &nbsp;&nbsp;credit notes (-) |  |  |
| &nbsp;&nbsp;total cash deposits into Blocked Accounts (-) |  |  |
| &nbsp;&nbsp;cash deposits into Blocked Accounts not credited against accounts receivable (+) |  |  |
| &nbsp;&nbsp;cash deposits into Blocked Accounts not related to accounts receivable (+) |  |  |
| &nbsp;&nbsp;adjustments (+/-) |  |  |
| &nbsp;&nbsp;total accounts receivable as of current Borrowing Base Certificate dated ______ |  |  |

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EXHIBIT C

FORM OF COMPLIANCE CERTIFICATE

---

| | |
|:---|:---|
| &nbsp;&nbsp;**TO:** | &nbsp;&nbsp;Royal Bank of Canada ("**Lender**") |

---

The undersigned, ____________________ **[TITLE of AUTHORIZED OFFICER]**, of DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a "**Borrower**", and collectively the "**Borrowers**"), pursuant to the provisions of the loan agreement dated as of February 12, 2021, among, inter alia, Lender and Borrowers (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 each Borrower and not in **[his/her]** personal capacity that:

1. The Financial Statements attached hereto fairly and accurately represent the Canadian Borrower's consolidated financial condition at the end of the particular accounting period set out in such Financial Statements, as well as the Canadian Borrower's consolidated operating results during such accounting period, subject to year-end audit adjustments;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) there has been no Default or Event of Default under the Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) no Credit Party is aware of any event or circumstance which could reasonably have or could reasonably have had a Material Adverse Effect;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) 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 a Borrower that any representation or warranty is not correct and Lender has explicitly waived in writing compliance with such representation or warranty;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) attached hereto is an updated Schedule G listing of Material Contracts of the Credit Parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) each Credit Party has 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) no new Subsidiaries were formed or acquired since the end of the previous calendar month [If acquired or formed, indicate for each such Subsidiary, the date of the formation or acquisition];

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) no change in GAAP or in the application thereof has occurred since the date of the most recent audited annual Financial Statements of the Credit Parties 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.]**

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 each Borrower as of the _______ day of ________________, 20<>.

By: Name:Title of Authorized Officer <br>

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**ATTACHMENT "1"to exhibit C**<br>**FINANCIAL COVENANTS** <br>**COMPANY NAME** ______________________________________<br>**MONTHLY CERTIFICATE** _________________________________ 20__<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A. Fixed Charge Coverage Ratio**<br>Net Income <br><u>plus:</u><br> Depreciation Expense<br>current and deferred taxes<br>investment losses accounted for by equity<br>Total Interest Expense<br>unrealized hedging losses<br>non-cash stock based compensation expenses<br>extraordinary, non-recurring and unusual losses<br><u>minus:</u> <br>reduction of income taxes<br>unrealized hedging gains<br>investment gains accounted for by equity<br>extraordinary, non-recurring and unusual gains<br>**Adjusted EBITDA**<br> <u>minus</u>:<br>cash income taxes paid <br>Unfunded Capital Expenditures<br>Restricted Payments<br><u>plus</u><br>operating leases and rent<br>**(i) TOTAL**<br>Total Interest Expense<br>scheduled payments of principal on Funded Debt<br>scheduled payments under Capital Leases<br>operating lease payments<br>**(ii) TOTAL**<br>Fixed Charge Coverage Ratio = (i)/(ii)<br>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B. Reserve Account Balance**<br>**TOTAL =** <br>

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EXHIBIT D

FORM OF NOTICE OF REPAYMENT

**(Letter to be typed on a Borrower's Letterhead)**

**[DATE]**

Royal Bank of Canada

20 King Street West, 4<sup>th</sup> Floor

Toronto, Ontario M5H 1C4

Attention: Operations Group

FAX: [\*\*\*]

E-MAIL: [\*\*\*]

<u>cc:</u>

Attention: Portfolio Manager

E-MAIL: [\*\*\*]

**REPAYMENT NOTICE**

We refer to the loan agreement dated as of February 12, 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 Loan Agreement), DIRTT Environmental Solutions Ltd. and DIRTT Environmental Solutions, Inc. (each a "**Borrower**", and collectively the "**Borrowers**"), each other Credit Party executing same and Royal Bank of Canada ("**Lender**").

The Borrowers hereby give you notice pursuant to Section 1.2(c) of the Credit Agreement that they intend to make a prepayment of **[RBP] [RBUSBR] [CDOR Rate] [Term SOFR Rate]** Revolving Loans in the amount of [U.S.] / [CDN] $________________ on ________________, 20_____.

[**Note to Draft: revise wording accordingly to include particulars if the prepayment is conditioned upon the occurrence or non-occurrence of any event.]**

---

| | |
|:---|:---|
| &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS LTD.** |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |

---

---

| | |
|:---|:---|
| &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.**  | &nbsp;&nbsp;**DIRTT ENVIRONMENTAL SOLUTIONS, INC.**  |
| &nbsp;&nbsp;Per: |  |
|  | &nbsp;&nbsp;Name:  |
|  | &nbsp;&nbsp;Title:  |

---

------

## Ex-21

**Exhibit 21.1** 

**DIRTT Environmental Solutions Ltd.** 

**List of Subsidiaries** 

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| | |
|:---|:---|
| <u>Name</u> | <u>Jurisdiction of Organization</u> |
| DIRTT Environmental Solutions, Inc. | Colorado |

---

------

## Ex-23

**Exhibit 23.1** 

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-234143 and 333-238689) and Form S-3 (No. 333-251660) of DIRTT Environmental Solutions Ltd. of our report dated February 22, 2023 relating to the consolidated financial statements, which appears in this Form 10-K.

---

| |
|:---|
| /s/ PricewaterhouseCoopers LLP |
| **Chartered Professional Accountants** |
| Calgary, Alberta, Canada |
| February 22, 2023 |

---

------

## Ex-31

**Exhibit 31.1** 

**CERTIFICATION** 

**PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)** 

**AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002** 

I, Benjamin Urban, certify that:

1. I have reviewed this Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the "registrant") for the year ended December 31, 2022;

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 registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 registrant, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.Evaluated the effectiveness of the registrant'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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Dated: February 22, 2023 | By: | /s/ Benjamin Urban |
|  |  | Benjamin Urban |
|  |  | Chief Executive Officer |
|  |  | (Principal Executive Officer) |

---

------

## Ex-31

**Exhibit 31.2** 

**CERTIFICATION** 

**PURSUANT TO EXCHANGE ACT RULE 13A-14(a) OR RULE 15D-14(a)** 

**AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002** 

I, Bradley S. Little, certify that:

1. I have reviewed this Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the "registrant") for the year ended December 31, 2022;

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 registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 registrant, 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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.Evaluated the effectiveness of the registrant'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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Dated: February 22, 2023 | By: | /s/ Bradley S. Little |
|  |  | Bradley S. Little |
|  |  | Chief Financial Officer |
|  |  | (Principal Financial Officer) |

---

------

## Ex-32

**Exhibit 32.1** 

**CERTIFICATION** 

**PURSUANT TO 18 U.S.C. § 1350,** 

**AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** 

In connection with the Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the "Company") for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Benjamin Urban, Chief Executive 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | | |
|:---|:---|:---|
| Dated: February 22, 2023 | By: | /s/ Benjamin Urban |
|  |  | Benjamin Urban |
|  |  | Chief Executive Officer |
|  |  | (Principal Executive Officer) |

---

------

## Ex-32

**Exhibit 32.2** 

**CERTIFICATION** 

**PURSUANT TO 18 U.S.C. § 1350,** 

**AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** 

In connection with the Annual Report on Form 10-K of DIRTT Environmental Solutions Ltd. (the "Company") for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bradley S. Little, 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | | |
|:---|:---|:---|
| Dated: February 22, 2023 | By: | /s/ Bradley S. Little |
|  |  | Bradley S. Little |
|  |  | Chief Financial Officer |
|  |  | (Principal Financial Officer) |

---

------