FormerXBC Inc. - Annual Report 2021

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XEBEC ADSORPTION INC.

Annual Information Form For the Year Ended December 31, 2020

Dated March 31, 2021

GENERAL MATTERS ...................................................................................................................................... 1 FORWARD-LOOKING STATEMENTS ............................................................................................................. 1 MARKET AND INDUSTRY DATA .................................................................................................................... 2 INTELLECTUAL PROPERTY ............................................................................................................................ 2 ORGANIZATIONAL STRUCTURE .................................................................................................................... 3 General ............................................................................................................................................ 3 Overview of the Corporation’s Business ......................................................................................... 5 Blainville, Québec (Head Office and Manufacturing Facility) ............................................ 5 Shanghai, China (Manufacturing Facility) .......................................................................... 5 Milan, Italy (Sales and Project Management Office) ......................................................... 5 Compressed Air International (Service Company) ............................................................. 6 CDA Systems LLC (Service Company) ................................................................................. 6 Air Flow (Service Company) ............................................................................................... 6 Applied Compression Systems (Service Company) ............................................................ 6 The Titus Company (Service Company) ............................................................................. 6 Inmatec .............................................................................................................................. 6 HyGear ............................................................................................................................... 6 GENERAL DEVELOPMENT OF THE BUSINESS ............................................................................................... 7 Recent Developments ..................................................................................................................... 7 Legal Proceedings .............................................................................................................. 7 Updated Full Year 2020 Revenue Guidance ...................................................................... 7 New Credit Facilities with National Bank of Canada .......................................................... 7 Inmatec Acquisition ........................................................................................................... 7 Launch of Hydrogen Supply Strategy in the United Kingdom ........................................... 8 Hydrogen Order Port of Long Beach Project ..................................................................... 8 Organizational Changes ..................................................................................................... 8 Graduation to TSX .............................................................................................................. 8 THREE YEAR HISTORY ................................................................................................................................... 8 2020 Highlights ............................................................................................................................... 8 2019 Highlights ............................................................................................................................. 12 2018 Highlights ............................................................................................................................. 13 BUSINESS AND INDUSTRY .......................................................................................................................... 14 Mission & Overview ...................................................................................................................... 14 Our Products ................................................................................................................................. 15 New Products ................................................................................................................................ 15 Technology .................................................................................................................................... 15 Adsorption ....................................................................................................................... 15

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Pressure Swing Adsorption (PSA) .................................................................................... 16 Filtration ........................................................................................................................... 16 Steam Methane Reforming .............................................................................................. 16 Electrolyser ...................................................................................................................... 17 Oxygen and Nitrogen On-site Generation ....................................................................... 17 Sales and Marketing ...................................................................................................................... 17 Research and Development .......................................................................................................... 17 International Footprint and Certifications .................................................................................... 17 Manufacturing and Quality Assurance ......................................................................................... 18 Intangible Assets ........................................................................................................................... 19 Human Resources ......................................................................................................................... 19 Environmental Protection ............................................................................................................. 19 Sustainability Approach ................................................................................................................ 20 Industry Overview, Trends & Strategy .......................................................................................... 20 Global Greenhouse Gas Reduction Goals ........................................................................ 20 Organic Waste Management ........................................................................................... 20 Low natural gas prices and low carbon fuels ................................................................... 21 Our Business Segments .................................................................................................... 21 Cleantech (Systems) ...................................................................................................................... 21 Renewable Natural Gas ................................................................................................... 21 RNG Market Size .............................................................................................................. 21 Hydrogen and Renewable Hydrogen (RH2) ..................................................................... 22 RH2 Market Size ............................................................................................................... 22 Industrial Service and Support ......................................................................................... 23 Industrial Parts and Service Market Size ......................................................................... 23 Revenues per Reportable Segments ................................................................................ 23 Overall Business Strategy .............................................................................................................. 24 RISK FACTORS ............................................................................................................................................. 25 Risk Factors - Internal ................................................................................................................... 25 Risk Factors - External ................................................................................................................... 35 Risk Related to our Common Shares ............................................................................................ 39 Risks Related to the Post-Acquisition Business and Operations of Xebec and HyGear ................ 40 DESCRIPTION OF SHARE CAPITAL .............................................................................................................. 44 Common Shares ............................................................................................................................ 45 Preferred Shares ........................................................................................................................... 45 DIVIDENDS ................................................................................................................................................. 45 MARKET FOR SECURITIES ........................................................................................................................... 46 Trading Price And Volume ............................................................................................................ 46 Prior Sales ..................................................................................................................................... 47

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SECURITIES SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFER .................................................... 47 DIRECTORS AND EXECUTIVE OFFICERS ...................................................................................................... 47 Biographical Information Regarding Our Directors ...................................................................... 48 Biographical Information Regarding Our Executive Officers ........................................................ 51 Ownership Interest ....................................................................................................................... 53 Penalties or Sanctions ................................................................................................................... 53 Individual Bankruptcies ................................................................................................................. 53 Corporate Cease Trade Orders and Bankruptcies ........................................................................ 54 Conflicts of Interest ....................................................................................................................... 54 AUDIT COMMITTEE .................................................................................................................................... 54 Charter of the Audit Committee ................................................................................................... 54 Composition of the Audit Committee ........................................................................................... 55 Relevant Education and Experience ............................................................................................. 55 Pre-approval Policies and Procedures .......................................................................................... 55 NON-AUDIT SERVICES ................................................................................................................................ 56 LEGAL PROCEEDINGS ................................................................................................................................. 56 INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS .............................................. 56 AUDITORS, TRANSFER AGENT AND REGISTRAR......................................................................................... 56 INTEREST OF EXPERTS ................................................................................................................................ 57 MATERIAL CONTRACTS .............................................................................................................................. 57 ADDITIONAL INFORMATION ...................................................................................................................... 57 APPENDIX “A” AUDIT COMMITTEE CHARTER .............................................................................................. 1

GENERAL MATTERS

Established in 1967, Xebec has over 50 years of experience in adsorption technology, supplying more than 10,000 units to clients worldwide.

Xebec Adsorption Inc. is a global provider of clean energy solutions for renewable and low carbon gases used in energy, mobility and industry applications. The Corporation specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen. By focusing on environmentally responsible gas generation, Xebec has helped thousands of customers around the world reduce their carbon footprints and operating costs. Headquartered in Québec, Canada, Xebec has a worldwide presence with five manufacturing facilities, eight Cleantech Service Centers and four sales offices spanning over four continents.

This annual information form (this “ AIF ”) for the fiscal year ended December 31, 2020 is dated March 31, 2021 and, unless specifically stated otherwise, all information disclosed in this AIF is provided as of December 31, 2020.

In this AIF, where the context so requires, references to the “ Corporation ”, “ Xebec ”, “ we ”, “ us ”, “ our ” or similar expressions refer to Xebec Adsorption Inc. together with our subsidiaries. This AIF should be read in conjunction with the Corporation’s audited consolidated financial statements and notes for the fiscal year ended on December 31, 2020 and the Management’s Discussion and Analysis for the fiscal year ended on December 31, 2020, but which, for greater certainty, are not incorporated by reference herein. Copies of the audited consolidated financial statements and notes for the fiscal year ended on December 31, 2020 and the Management’s Discussion and Analysis for the fiscal year ended on December 31, 2020 are accessible on the Corporation’s SEDAR profile at www.sedar.com.

The financial statements of the Corporation are reported in Canadian dollars. The annual financial statements of our subsidiary Green Vision Holding B.V., the parent company of HyGear Technology and Services B.V. (together, “ HyGear ”) are reported in Euros.

The Corporation’s last fiscal year ended on December 31, 2020. HyGear’s last fiscal year ended on December 31, 2020.

Unless otherwise indicated, all references to monetary amounts in this AIF are denominated in Canadian dollars or Euros. Unless otherwise indicated, all references to “$”, “C$” and “dollars” in this AIF refer to Canadian dollars and all references to “€” in this AIF refer to Euros. Certain totals, subtotals and percentages throughout this AIF may not reconcile due to rounding.

FORWARD-LOOKING STATEMENTS

This AIF contains forward-looking statements within the meaning of applicable securities laws, including statements regarding the future success of the Corporation’s business, technology, and market opportunities. Forward-looking statements typically contain words such as “believes”, “expects”, “anticipates”, “continue”, “could”, “indicates”, “plans”, “will”, “intends”, “may”, “projects”, “schedule”, “would” or similar expressions suggesting future outcomes or events, although not all forward-looking statements contain these identifying words. Examples of such statements include, but are not limited to, statements concerning: (i) actions expected to be undertaken to achieve the Corporation’s strategic goals; (ii) the key market drivers impacting the Corporation’s success; (iii) intentions with respect to future renewable gas work; (iv) expectations regarding business activities and orders that may be received in fiscal 2021 and beyond; (v) trends in, and the development of, the Corporation’s target markets; (vi) the

Corporation’s market opportunities; (vii) the benefits of the Corporation’s products, (viii) the intention to enter into agreements with partners; (ix) future outsourcing; (x) expectations regarding competitors; (xi) the expected impact of the described risks and uncertainties; (xii) intentions with respect to the payment of dividends; (xiii) the management of the Corporation’s liquidity risks in light of the prevailing economic conditions; (xiv) the Corporation’s cost reduction plan; (xv) the search for additional financing in the future; and (xvi) statements regarding the merits of the class action complaints filed against the Corporation. Readers are cautioned that the foregoing list is not exhaustive. These statements are neither promises nor guarantees but involve known and unknown risks and uncertainties that may cause the Corporation’s actual results, level of activity or performance to be materially different from any future results, levels of activity or performance expressed in or implied by these forward-looking statements. These risks include, generally, risks related to revenue growth, operating results, industry and products, technology, competition, the economy and other factors described in detail herein under the heading “Risk Factors”. Readers should carefully review and consider the risk factors described under the heading “Risk Factors”.

Although the forward-looking statements contained herein are based upon what management believes to be current and reasonable assumptions, the Corporation cannot assure readers that actual results will be consistent with these forward-looking statements. Examples of such assumptions include but are not limited to: (i) trends in certain market segments and the economic climate generally; (ii) the pace and outcome of technological development; (iii) the identity and expected actions of competitors and customers; and (iv) the value of the Canadian dollar.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. They are made as of the date of this AIF. Except to the extent required by law, the Corporation undertakes no obligation to publicly update or revise any forward-looking statements contained herein.

MARKET AND INDUSTRY DATA

Market and industry data presented throughout this AIF was obtained from third-party sources, websites and other publicly available information, as well as industry and other data prepared by us or on our behalf on the basis of our knowledge of the markets in which we operate. We believe that the market and economic data presented throughout this AIF is accurate and, with respect to data prepared by us or on our behalf, that our opinions, estimates and assumptions are currently appropriate and reasonable, but there can be no assurance as to the accuracy or completeness thereof and we do not make any representation to that effect. Actual outcomes may vary materially from those forecast in such reports or publications, and the prospect for material variation can be expected to increase as the length of the forecast period increases. Although we believe it to be reliable, we have not independently verified any of the data from third-party sources referred to in this AIF, analyzed or verified the underlying studies or surveys relied upon or referred to by such sources, or ascertained the underlying market, economic and other assumptions relied upon by such sources. Market and economic data is subject to variations and cannot be verified due to limits on the availability and reliability of data inputs, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey.

INTELLECTUAL PROPERTY

On March 22, 2012, Xebec entered into a license agreement with Air Products and Chemicals, Inc. pursuant to which Xebec licensed back its intellectual property and patents sold to Air Products and Chemicals, Inc. and will continue to develop and sell its systems (the “ License Agreement ”).

Since December 31, 2020, with the HyGear Acquisition (as defined below) Xebec indirectly holds 14 patents related to steam reforming, water electrolysis, gas recycling and gas purification.

Furthermore, Xebec strive to create, along with many of its industry partners, leading-edge proprietary technologies that meet or exceed the requirements of regulation and industry codes and standard to shift industries to alternative fuels, delivering low- or zero- emissions fuel solutions that will meet the demand for high -efficiency, high-performance, and low-carbon needs.

Xebec also depends on a combination of licensed patents, including licensed patents on its technology and applications of its technology, licenses, trademarks, copyrights and trade secrets to protect its products and brands. Xebec also identifies and monitors intellectual property owned by others on an ongoing basis, to avoid potential intellectual property infringements.

ORGANIZATIONAL STRUCTURE

General

The Corporation is incorporated under the Canada Business Corporations Act (“ CBCA ”). Pursuant to a certificate of arrangement effective June 12, 2009, the Corporation and QuestAir Technologies Inc. amalgamated and the entity resulting from such amalgamation is Xebec Adsorption Inc. On May 13, 2010, the former By-Law No. 1 of the Corporation was repealed and replaced with the General By-Laws No. 1- 2009 retroactively to June 12, 2009. On May 13, 2010, the Articles of the Corporation were amended to change the fixed number of Directors to a variable number of three Directors and a maximum of ten Directors. On June 26, 2020, the Articles of the Corporation were amended to enable the appointment by the Directors of one or more additional Directors in certain limited circumstances for a term expiring no later than the close of the next meeting of shareholders.

As of the date of this AIF, Xebec is a reporting issuer in each of the provinces of Canada. The head office and principal place of business of Xebec is located at 730 boulevard Industriel, Blainville, Québec, Canada, J7C 3V4.

The tables below describe the material subsidiaries of Xebec as well as other material ownership interests of the Corporation as at March 31, 2021.

of the Corporation as at March 31, 2021.
XEBEC ADSORPTION INC
Name of Subsidiary	% Interest	Location
Xebec Adsorption (Shanghai) Co. Ltd	60%	Republic of China
Xebec Adsorption Europe SRL	100%	Italy
Xebec Holding USA Inc.*	100%	Delaware, USA
Compressed Air International Inc.	100%	Ontario, Canada
Xebec RNG Holdings Inc.	100%	Canada
Xebec Europe B.V.*	100%	Netherlands
GNR Québec Capital L.P.	49.9995%	Quebec, Canada
Applied Compression Systems Ltd.	100%	British Colombia, Canada

XEBEC EUROPE B.V.
Name of Subsidiary	% Interest	Location
Xebec Deutschland GmBH	100%	Germany
Green Vision Holding B.V.*	100%	Netherlands

GREEN VISION HOLDING B.V.
Name of Subsidiary	% Interest	Location
HyGear Technology and Services B.V.*	100%	Netherlands

HYGEAR TECHNOLOGY AND SERVICES B.V.
Name of Subsidiary	% Interest	Location
HyGear Operations B.V.	100%	Netherlands
HyGear B.V.	100%	Netherlands
HyGear Asia PTE LTD	100%	Singapore
HyGear Fuel Cell Systems B.V.	100%	Netherlands
HyGear Hydrogen Plant B.V.	100%	Netherlands
Buse- HyGear Ltd.	100%	UK

XEBEC DEUTSCHLAND GmbH
Name of Subsidiary	% Interest	Location
Xebec Komplementär GmbH	100%	Germany
Inmatec Inmatec Gase Technologie GmbH & Co.KG (indirectly)	100%	Germany
Inmatec Gas Technology FZC	100%	United Arab Emirates

XEBEC HOLDING USA INC.
Name of Subsidiary	% Interest	Location
Enerphase Industrial Solutions Inc. (Air Flow)	100%	North Carolina, USA
CDA Systems, LLC	100%	California, USA
Xebec Adsorption USA Inc.	100%	Texas, USA
The Titus Company	100%	Philadelphia, USA

GNR QUÉBEC CAPITAL MANAGEMENT INC.
Name of Subsidiary	% Interest	Location
GNR Québec Capital L.P.	0.001%	Quebec

*The subsidiary itself has one or more subsidiaries.

Overview of the Corporation’s Business

Xebec is a global provider of clean energy solutions for renewable and low carbon gases used in energy, mobility and industry applications. The Corporation specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen. By focusing on environmentally responsible gas generation, Xebec has helped thousands of customers around the world reduce their carbon footprints and operating costs.

Headquartered on the North Shore of Montreal, the Corporation is a global company with manufacturing facilities in Blainville (Québec), Shanghai (China), Arnhem (The Netherlands), Herrsching and Frankfurt (Germany), research and development facilities in Blainville (Québec) and Arnhem (The Netherlands), sales offices in Houston, Texas (USA), Milan(Italy), Singapore, Ras Al Khaimah (United Arab Emirates), as well as a sales and distribution network in North America, Europe and Asia. The Corporation also has a sales and service offices in Ontario, Canada (see “Compressed Air International (Service Company)” below), in California, USA (see “CDA Systems LLC (Service Company)” below), in North Carolina, USA (see “Air Flow (Service Company)” below), in British Columbia, Canada (see “Applied Compression Systems (Service Company)” below), in Pennsylvania, USA (see “The Titus Company (Service Company)” below), in Singapore (see “HyGear (Service Company)” below) and parts of Europe, the Middle East and Africa (see “Inmatec (Service Companies)” below).

Blainville, Québec (Head Office and Manufacturing Facility)

Xebec’s head offices operate out of a 41,753 square foot leased manufacturing facility located in Blainville. The Blainville operation houses corporate administration, finance, sales, R&D, engineering, supply chain, manufacturing, and service and support.

Shanghai, China (Manufacturing Facility)

In light of the growing demand for low carbon transportation fuels in China and the Asian region at large, Xebec opened, in 2008, a 20,451 square foot leased manufacturing facility in the Songjiang district of Shanghai, China. This facility leased and operated by Xebec Adsorption (Shanghai) Co. Ltd. and is responsible for engineering, supply chain, product assembly, marketing, sales, technical service and after sales support for the Chinese, South East Asian and Middle Eastern markets.

Milan, Italy (Sales and Project Management Office)

In June 2016, Xebec announced the opening of a sales office in Milan, Italy. This facility is leased and operated by Xebec Adsorption Europe SRL.

Compressed Air International (Service Company)

On January 1, 2019, Xebec announced the acquisition of Compressed Air International Inc. in Ontario, Canada. The Corporation leases two facilities in the Toronto area. It is responsible for sales and servicing of compressed air products and now also supports all Xebec products in Ontario.

CDA Systems LLC ( Service Company)

On December 10, 2019, the Corporation announced the acquisition of all of the outstanding securities of CDA Systems LLC (“ CDA ”) in California, USA. CDA leases one facility in the Livermore area and is responsible for sales, rental and services of compressed air products and now also supports all Xebec products in California.

Air Flow (Service Company)

On August 4, 2020, the Corporation announced the acquisition of all of the outstanding securities of Enerphase Industrial Solutions, Inc. doing business as Air Flow (“ Air Flow ”). Air Flow is a distributor and service provider of compressed air equipment in North Carolina, which focus is on preventative maintenance solutions, air energy system audits and analysis, timely machine rentals and parts and service. The acquisition expands the Corporation’s Cleantech Service Network (“ CSN ”) to North Carolina.

Applied Compression Systems (Service Company)

On September 1, 2020, the Corporation announced the acquisition of all of the outstanding securities of Applied Compression Systems Ltd. (“ ACS ”). With ACS, the Corporation’s CSN increased and now includes British Columbia. ACS offers a single source solution for air & gas compression requirements. ACS focuses on custom designed and fabricated compressor packages for specialized applications in the oil, gas, petrochemical, alternative fuel, waste-to-energy, research, power generation, mining and manufacturing industries.

The Titus Company (Service Company)

On November 10, 2019, the Corporation announced the acquisition all of the outstanding shares of The Titus Company (“ Titus ”), a supplier of compressed air services. With the acquisition of Titus, the Corporation’s CSN coverage includes Eastern Pennsylvania, Delaware and New Jersey. See “Recent Developments” – “Titus Acquisition”.

Inmatec

On February 22, 2021, the Corporation announced the closing of the Inmatec Acquisition (as defined herein). With the Inmatec Acquisition, the Corporation extends its operations with manufacturing facilities in Germany and the Corporation’s CSN coverage now includes parts of Europe, the Middle East and Africa. See “Recent Developments” – “Inmatec Acquisition”.

HyGear

On December 31, 2020 the Corporation announced the closing of the acquisition of all of the outstanding shares HyGear (as defined herein). HyGear is an emerging developer, manufacturer, and supplier of technology and products for the production, recovery, purification, and mixing of industrial gases, such as hydrogen and nitrogen. With the HyGear Acquisition (as defined below), the Corporation’s operations extends to The Netherlands, where HyGear’s main operations, including manufacturing facilites and head

office are located, and Southeast Asia, where HyGear has local operations, including an office in Singapore where sales and service activities serve the Asian market.

GENERAL DEVELOPMENT OF THE BUSINESS

Recent Developments

Legal Proceedings

On March 19, 2021 a legal proceeding in the Ontario Superior Court of Justice was issued initiating a proposed class action against the Corporation, its current directors and certain of the Corporation’s current and former officers, its auditor and the underwriters of the December Offering (as defined herein) as defendants. The claim alleges that Xebec would have made misrepresentations in certain disclosure documents that were revealed in a press release dated March 12, 2021 entitled “Xebec Provides Updated 2020 Guidance” where the Corporation provided a downwards revision of 2020 guidance.

On March 15, 2021 a legal proceeding in the Québec Superior Court (Class Actions Division) was issued initiating a proposed class action against the Corporation, certain of its current directors, certain of the Corporation’s current and former officers and the underwriters of the December Offering as defendants. The claim alleges that Xebec would have made misrepresentations in its disclosure documents for Q3 2020 as well as its December 2020 prospectus with respect to revenue accounting practices and Xebec’s internal controls over financial reporting.

Updated Full Year 2020 Revenue Guidance

On March 12, 2021, the Corporation announced that as a result of extraordinary items in its cleantech business segment and due to the impact of the COVID-19 pandemic, Xebec no longer expected to achieve its previous full year 2020 revenue guidance of $70 to $80 million.

New Credit Facilities with National Bank of Canada

On February 24, 2021, the Corporation announced that it secured credit facilities with National Bank of Canada’s Technology and Innovation Banking Group for a total value of up to $59.25 million. The expanded facilities provide Xebec with greater financial flexibility and cash management to pursue its growth trajectory and its acquisition strategy aimed at developing a North American and European CSN for its increasing renewable natural gas and hydrogen installations.

Inmatec Acquisition

On February 22, 2021 the Corporation announced the closing of the acquisition of all of the issued and outstanding shares and partnership units of Inmatec Gase Technologie GmbH & Co. KG and Inmatec Gas Technology FZC RAK, UAE (the “ Inmatec Acquisition ”). The Inmatec Acquisition, which was previously announced by Xebec as an “LOI Acquisition” on December 8, 2020, was completed on February 22, 2021.

The Inmatec Acquisition positions Xebec to execute and accelerate its distributed renewable and low carbon gas strategy. The acquisition of new oxygen and nitrogen generation technologies, and the access to new markets and service capabilities, will enable Xebec to bring cost-effective gas supply to customers around the world. Specifically, the acquisition is expected to, among other things: position Xebec as a worldwide leader in on-site nitrogen and oxygen generation products, create new growth opportunities by bringing products to North America, expand the CSN in Europe and gain entry into the German hydrogen and renewable natural gas markets, provide access to an established network of over 40

worldwide distribution partners and grant exposure to the fast-growing medical oxygen market. See Cautionary Note Regarding “Forward-Looking Statements”.

Launch of Hydrogen Supply Strategy in the United Kingdom

On February 16, 2021 Xebec announced that HyGear signed a Gas-as-a-Service (“ GaaS ”) contract with Saint-Gobain Glass, a publicly listed issuer on the Euronext Paris exchange, for a 15-year term. The Corporation also announced the delivery by HyGear of an on-site hydrogen generation system to KIWA Group in Birmingham, United Kingdom for fuel cell components testing which, in addition to the start of construction of a Decentralized Hydrogen Production Hub, marked launch of the Corporation’s hydrogen supply strategy in the United Kingdom.

Hydrogen Order Port of Long Beach Project

On February 11, 2021 Xebec announced it received received a hydrogen purification system order from FuelCell Energy, Inc., a publicly listed issuer on the NASDAQ exchange. The order is for a Pressure Swing Adsorption (PSA) based system that will purify hydrogen produced by FuelCell Energy’s SureSource[TM] Hydrogen platform to meet required standards for fueling zero-emission fuel cell vehicles for Toyota’s operations at the Port of Long Beach in California.

Organizational Changes

On February 12, 2021 Xebec announced the departure of Dr. Prahbhu K. Rao as Chief Operating Officer of Xebec. Mr. Marinus Van Driel was concurrently appointed to lead Xebec’s global hydrogen operations as the new President for the Global Hydrogen Group, in addition to his role as President for Xebec Europe.

Graduation to TSX

On January 6, 2021 the Corporation received final approval from the Toronto Stock Exchange (“ TSX ”) to list its common shares on the TSX (the “ TSX Graduation ”). The TSX Graduation was previously announced by Xebec on October 21, 2020. The Common Shares were delisted from the TSX Venture Exchange and commenced trading on the TSX at the market open on January 7, 2021 under the symbol “XBC”.

THREE YEAR HISTORY

2020 Highlights

On December 31, 2020, Xebec closed its acquisition of Green Vision Holding B.V., the parent company of HyGear Technology and Services B.V. for aggregate consideration of €82.0 million (approximately $127.3 million) and the assumption of €18.4 million (approximately $28.6 million) in net debt (the “ HyGear Acquisition ”).

HyGear was founded in 2002 in Arnhem, The Netherlands, as a clean-tech company specializing in the on-site production and recovery of industrial gases. HyGear is an emerging developer, manufacturer, and supplier of technology and products for the production, recovery, purification, and mixing of industrial gases, such as hydrogen and nitrogen. HyGear’s technological backbone consists of 14 active patents issued both in EU countries and the United States.

HyGear develops technology to generate these gases on smaller scales and in a more efficient manner. This allows for installations to be located at customer sites, which enables their supply chains to become more efficient and ultimately results in cost savings and a reduced environmental

impact. As at acquisition date, HyGear has commissioned 66 installations in 23 countries around the world.

HyGear currently has its head office in Arnhem, The Netherlands, where the main operations of HyGear are conducted, including manufacturing facilities. HyGear also has local presence in Southeast Asia, with an office in Singapore where sales and service activities serve the Asian market.

The Hygear Acquisition is a significant acquisition for which disclosure is required under Part 8 of National Instrument 51-102: Continuous Disclosure Obligations , and Xebec has filed a Form 51-102F4 - Business Acquisition Report (BAR) in respect of the HyGear Acquisition.

In connection with the HyGear Acquisition, on December 8, 2020, Xebec Europe B.V., a subsidiary of the Corporation (the “ Purchaser ”) entered into a share purchase agreement (the “ Purchase Agreement ”) with SDI Technology Ventures B.V., Ontwikkelingsmaatschappij Oost Nederland N.V. and Stichting Administratiekantoor HyGear (collectively, the “ Sellers ”) in connection with the HyGear Acquisition by the Purchaser of all of the issued and outstanding shares of HyGear held by the Sellers (the “ HyGear Shares ”).

The following is a summary of the material terms of the Purchase Agreement. This summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the provisions of the Purchase Agreement, a copy of which was filed on SEDAR at www.sedar.com.

Purchase Price

The purchase price payable by the Purchaser pursuant to the Purchase Agreement on the Acquisition Closing Date for the acquisition of the HyGear Shares was €82,000,000 ($127,346,000), subject to certain closing and post-closing adjustments, including leakage mechanism adjustments (the “ Purchase Price ”). The Purchase Price was paid to the Sellers in cash in an amount of €42,000,000 ($65,226,000) (the “ Cash Portion ”) and in Common Shares representing a total value of €40,000,000 ($62,120,000) (the “ Share Consideration ”). The number of Common Shares to be issued was determined based on a deemed issuance price of $6.03 per Common Share, reflecting a total value of such Share Consideration to be equal to $62,120,000.

An amount equal to €4,200,000 ($6,522,600) (the “ Indemnity Holdback ”) was held from the Cash Portion as security for the performance of the obligations of the Sellers under the Purchase Agreement, transferred to Intertrust Escrow & Settlements B.V., as escrow agent, and disbursed in accordance with an escrow agreement in the form of Schedule 7 to the Purchase Agreement (the “ Escrow Agreement ”).

Representations and Warranties

The Purchase Agreement contains representations and warranties made by the Sellers in favour of the Purchaser that are customary for a transaction of this nature and size, including inter alia , with respect to: authority, validity and effect, title to securities, no breach, organization and corporate power, subsidiaries, authorization, securities, financial statements, no material adverse change, absence of certain developments, title to assets, sufficiency, tax matters, contracts and commitments, intellectual property, litigation, governmental consents, employee benefit plans, insurance, environmental matters, affiliated transactions, brokerage, permits, compliance with laws, employees, customers and suppliers, and product liability.

The Purchase Agreement also contains representations and warranties made by the Purchaser and Xebec in favour of the Sellers that are customary for a transaction of this nature and size, including inter alia , with respect to: organization and corporate power, authorization, no violation, consents and the Common Shares to be issued as Share Consideration.

Covenants

The Purchaser and Xebec have undertaken to maintain the head office of HyGear in Arnhem, Netherlands, for a period of at least three years after the HyGear Acquisition closing date.

Each party has agreed to keep confidential and not disclose any information, whether written or oral, relating to any other party or its affiliates in connection with the Purchase Agreement without the prior written consent of the party concerned by the disclosure.

Non-Solicitation and Non-Competition Undertakings

For a period of three years from and after the HyGear Acquisition closing date, each of SDI Technology Ventures B.V.and Marinus van Driel will not, and will cause their respective affiliates not to, directly or indirectly, solicit to hire, or hire, any employee, client, supplier or representative of HyGear and its subsidiaries (collectively, the “ Group ”), nor attempt to convince such persons to terminate, by any means, its, his or her employment, office or agreement with the Group or with the Purchaser or any of its affiliates, subject to certain exceptions set forth in the Purchase Agreement.

For a period of three years from and after the HyGear Acquisition closing date, each of SDI Technology Ventures B.V.and Marinus van Driel will not, and will cause their respective affiliates not to, (a) directly or indirectly, engage in or have any direct or indirect ownership interest in any business that is competitive (directly or indirectly) with the business of the Group, (b) create or acquire any direct or indirect shareholding in any person or group carrying on any business or activities which competes (directly or indirectly) with the business of the Group and (c) occupy any position as principal, manager, director, company representative, senior manager, employee, service provider or advisor in any other company, business or group whose business or activities compete (directly or indirectly) with the business of the Group, subject in each case to certain exceptions set forth in the Purchase Agreement.

Indemnification Provisions

Under the terms of the Purchase Agreement, the Sellers will indemnify the Purchaser and the Group from, subject to certain limitations and exceptions, all losses, damages or liabilities arising from: (a) any breach of, or any misrepresentation with respect to, any of the representations and warranties of the Sellers set forth in the Purchase Agreement; and (b) any breach by the Sellers of certain covenants set forth in the Purchase Agreement, including without limitation the restrictive covenants relating to non-competition and non-solicitation. The Purchaser will be indemnified by either Transact Risk Partners, as warranty and indemnity insurer to the Purchaser, in accordance with the buyer’s warranty and indemnity insurance policy susbcribed to in connection with the entering into of the Purchase Agreement (the “ W&I Insurance Policy ”) or the Sellers from the Indemnity Holdback or by a payment in cash to the extent the Indemnity Holdback is entirely exhausted. Such indemnification rights will be subject to certain limitations and exclusions set forth in, and exercised in accordance with, the Purchase Agreement, the W&I Insurance Policy and the Escrow Agreement.

Parent Guarantee

Xebec agreed to provide a guarantee in favour of the Sellers, pursuant to which Xebec will be jointly and severally (solidarily) liable with the Purchaser towards the Sellers with respect to the due and punctual performance by the Purchaser of the Purchaser’s obligations under the Purchase Agreement.

Indemnity Limitations and Exceptions

The Sellers will have no liability or obligation with respect to a breach of representations and warranties (other than fundamental representations and warranties set forth in the Purchase Agreement) unless the aggregate amount of the damages exceeds €25,000 on an individual basis and do not exceed an amount equal to 1% of the Purchase Price cumulative basis, in which case the indemnified parties will be indemnified for the full amount and not merely the excess.

The total aggregate liability of each Seller under the Purchase Agreement for breaches under certain covenants as well as for breaches of the representations and warranties not covered by the W&I Insurance Policy will be limited to the amount of such Seller’s relevant proportion of an amount of €12,300,000, provided that the total aggregate liability of each Seller under the Purchase Agreement for breaches under such covenants and of such representations and warranties, excluding the environmental representations and warranties, will be limited to such Seller’s relevant proportion of the Indemnity Holdback. The total aggregate liability of each Seller under the Purchase Agreement for, inter alia, breaches of the fundamental representations and warranties as well as breaches under the restrictive covenants relating to non-competition and non-solicitation will be limited to the amount of such Seller’s relevant proportion of the Cash Portion, provided that the total aggregate liability of Stichting Administratiekantoor HyGear shall always be limited to its relevant proportion of the Indemnity Holdback.

The Purchaser’s right to any payment to be made pursuant to the indemnification provisions in the Purchase Agreement (together with the Purchaser’s rights under the W&I Insurance Policy and under the Escrow Agreement with respect to the Indemnity Holdback) will be the Purchaser’s indemnified parties’ sole and exclusive source of recovery for any amounts owing to the Purchaser and the Group pursuant to the indemnification provisions in the Purchase Agreement.

Governing Law

The Purchase Agreement and all claims and defenses related thereto are governed by the laws of the Netherlands, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Netherlands or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Netherlands.

On December 30, 2020 the Corporation announced the closing of a bought deal offering (the “ December Offering ”) whereby a syndicate of underwriters led by Desjardins Capital Markets and TD Securities Inc. acting as joint bookrunners, and including National Bank Financial Inc., Canaccord Genuity Group Inc., Raymond James Ltd., Beacon Securities Limited and Stifel Nicolaus Canada Inc. (the “ Underwriters ”) purchased, on a bought deal basis, an aggregate of 24,784,800 subscription receipts for gross proceeds of $143,751,840, which includes the full exercise of the over-allotment option by the Underwriters.

On December 30, 2020 Xebec also announced the closing of the concurrent private placement with Caisse de dépôt et placement du Québec (“ CDPQ ”) (the “ CDPQ Private Placement ”), whereby CDPQ purchased, on a private placement basis, 10,905,174 subscription receipts for gross proceeds of $63,250,009, which includes the full exercise of the private placement option by CDPQ.
On December 17, 2020, the Corporation entered into a definitive purchase agreement in connection with the Inmatec Acquisition, which acquisition closed on February 22, 2021
On November 12, 2020, Xebec announced a strengthened partnership with Shanghai based Shernergy Group Company Limited with respect to its existing Sino-Joint Venture partnership with Xebec Shanghai. The new partnership is expected to open large-scale opportunities to develop hydrogen infrastructure in China and across Asia.
On October 30, 2020, Xebec Holding USA Inc., a wholly owned subsidiary of Xebec, entered into a definitive purchase agreement in connection with the acquisition of Titus.
On October 21, 2020, the TSX conditionally approved the listing of the Common Shares on the TSX. On January 6, 2021 the Corporation obtained the final approval from the TSX and Xebec graduated to the TSX and started trading on the exchange on January 7, 2021.
On October 13, 2020, Xebec announced the hiring of Ms. Nathalie Théberge and Mr. Russell Warner as its first Vice-President, Legal Affairs and Corporate Secretary and its first Vice-President, Industrial, respectively. Subsequently, on November 10, 2020, the Corporation announced the hiring of Mr. Stéphane Archambault as its Chief Financial Officer.
On June 26, 2020 Xebec closed an upsized bought deal offering of 7,986,750 Common Shares from treasury including the full exercise of an over-Allotment option, at a price of $3.60 per Common Share for aggregate gross proceeds of $28,752,300 (the “ June Offering ”). The June Offering was conducted by a syndicate of underwriters led by Desjardins Capital Markets and which included TD Securities Inc., Canaccord Genuity Corp., Raymond James Ltd., Beacon Securities Limited, and Stifel GMP. The Common Shares were offered by way of short form prospectus in all of the provinces of Canada.
On May 6, 2020, Xebec entered into a loan agreement with the Fonds de solidarité FTQ (“ FTQ ”), for an unsecured loan facility of $10 million. The loan facility has a term of 5 years and will be used for working capital, investments, acquisitions and general corporate purposes.
On February 18, 2020, Xebec and Bähler Biogas Inc. signed an agreement to develop an integrated facility to process various organic wastes for the production of RNG and biofertilizer.
On February 12, 2020, Xebec received $27.0 million in orders from U.S. dairy farmers for a total of six turnkey biogas upgrading plants and small-scale containerized Biostream™ systems to produce RNG the first Biostream unit was delivered and installed in the first quarter of 2021.

2019 Highlights

On December 27, 2019, Xebec closed a bought deal public offering of units at a price of $2.10 per unit for aggregate gross proceeds of $23.0 million.

On December 10, 2019, Xebec finalized its acquisition of a California-based service business, CDA. The acquisition was effective immediately.
On December 5, 2019, Xebec announced a letter of intent with Maas Energy for five biogas upgrading systems.
On August 28, 2019, Xebec qualified to trade on the OTCQX® Best Market.
On August 13, 2019, Xebec held its first webinar with shareholders. Close to 80 analysts, investors, media representatives and other stakeholders joined to discuss Q2 results.
In August 2019, Xebec launched the first phase of a new Enterprise Resources Planning (ERP) system.
On July 11, 2019, Xebec announced its inclusion in the U.S. Department of Energy’s (DOE) US$24 million commitment to a public-private collaboration, funding 77 energy technology projects.
On July 4, 2019, Xebec closed a bought deal financing of units at a price of $1.40 per unit for aggregate gross proceeds of $11,592,000. Each unit was comprised of one common share of Xebec and one half of one common share purchase warrant (each whole common share purchase warrant, a “2019 Warrant”). Each 2019 Warrant entitled the holder thereof to purchase one Common Share at a price of $1.85 per Common Share until July 4, 2020.
On March 12, 2019, Xebec announced that it signed a $6+ million contract for a landfill biogas upgrading plant in Italy, to be delivered in late 2019. Fully operational, it will produce around 5 million m3 of carbon neutral RNG annually, replacing the equivalent of approximately 5 million liters of diesel fuel.
On January 28, 2019, Xebec announced that its first project in Italy – a biogas upgrading plant in Modena, Italy - is operational. The AIMAG installation is successfully producing revenue-generating pure biomethane, also known as RNG, for injection into the local gas grid of AS RETIGAS. The biogas is produced from the anaerobic digestion (AD) of source-separated municipal organic waste.
On January 1, 2019 Xebec closed the acquisition of CAI in Toronto.

2018 Highlights

On December 2018, Xebec finalized its first acquisition of an Ontario-based service business, CAI. The acquisition was effective on January 1, 2019.
In the last quarter of 2018, the Corporation transferred its existing guarantee facility and credit facilities from TD Bank to National Bank and increased the guarantee facility to $12.0 million. Both are guaranteed by Export Development of Canada, Canada’s export credit agency.
In November 2018, Xebec closed an equity offering of units at a price of $0.75 per unit for aggregate gross proceeds of $7 million. Each unit was comprised of one common share of Xebec and one half of one common share purchase warrant (each whole common share purchase warrant, a “ 2018 Warrant ”). Each 2018 Warrant entitled the holder thereof to purchase one Common Share at a price of $1.05 per Common Share until May 7, 2020. All 2018 Warrants were exercised into Common Shares.

On August 30, 2018, Xebec was selected by Enbridge Gas Distribution Inc. to be the supplier for the turn- key biogas upgrading system for the City of Toronto’s first RNG facility, located at the Dufferin Solid Waste Management Facility.
On August 2, 2018, Xebec announced it obtained $23 million of additional financial support from EDC. The financial support consists of a credit agreement worth $11 million with two credit facilities, and a three-year term consisting of a $2 million working capital line and a $9 million Purchase Order (PO) facility (the “EDC Additional Financial Support”). In addition, Xebec also secured a $12 million bonding facility with EDC. The bonding facility is used to support the issuance of multiple bank guarantees.
On May 16, 2018, Xebec announced it signed an exclusive market development and commercialization agreement with Sapio Group. Under this agreement, Sapio Group agreed to a minimum purchase order commitment for multiple Xebec biogas upgrading plants for a total value of 33 million euros (CDN$51 million) to be delivered over three years. Sapio Group is one of the largest industrial gas companies in Italy with over 1,800 employees and revenues of Euro 500+ million. Its business model includes the production and distribution of bio-liquefied natural gas (bioLNG) throughout Italy. The biogas market in Italy continues to grow after some delays in the implementation of the regulations related to the incentives. Sapio and Xebec have extended their partnership to an additional year to provide adequate time to execute the projects. Projects based on this partnership are in the deployment and commissioning stage pending the end of the COVID19 restrictions.

BUSINESS AND INDUSTRY

Mission & Overview

OUR VISION IS A WORLD POWERED BY CLEAN ENERGY.

Xebec’s Mission is to enable our world to transition to a low-carbon future by accelerating the production of renewable gases.

Xebec’s Purpose is profitable growth for a sustainable future as only a profitable company will have the strength and resources to support its employees, satisfy its shareholders, grow the Corporation and the economy, and contribute positively to society while preserving and safeguarding our environment.

Xebec’s People work hard to deliver profitable growth. Our senior leaders set direction, create customer focus, define clear and visible values, and communicate high expectations and goals for the organization. Our strategies, systems, and methods for achieving performance excellence are developed to stimulate innovation, build knowledge and capabilities in an environment of respect, trust, diversity and teamwork.

Profitable growth is also the foundation for attracting and retaining talented, motivated and engaged employees. We are focused on building highly skilled and motivated teams that can meet the end-to-end needs of a rapidly developing company and support the evolving renewable gas industry.

Our Products

Systems and equipment to convert biogas to Renewable Natural Gas (RNG) from agricultural digesters, source separated facilities, landfill sites and Wastewater Treatment Plants (WWTP)
Hydrogen generation and purification systems for energy, mobility and industrial applications
Systems for renewable hydrogen generation from the steam methane reforming of Renewable Natural Gas
Systems for renewable hydrogen generation from electrolysis of renewable electricity
Gas Processing Systems for removal of CO2 from assorted gas streams
Natural Gas Dryers for Natural Gas Vehicles (NGV) refueling stations
Energy-efficient Compressed Air Dryers & Compressed Air and Gas Filters for a broad range of industrial applications
Air & Gas compressors and vacuum pumps
Custom gas purification systems for a variety of gas streams
On-site Oxygen and Nitrogen generators for industrial and healthcare applications

New Products

Xebec is accelerating its shift towards standardized biogas upgrading products for the renewable natural gas market. The Corporation launched and delivered its first fully containerized and standardized BGX Biostream™ (“Biostream”) unit for small-scale biogas upgrading applications in 2020. Xebec expects that this new product will lead to predictable cost management and improved gross margins. In addition, Biostream will allow Xebec to scale its operations to fill the growing demand for RNG systems. The product’s value proposition offers customers significantly shorter lead times, one week installation and start-up periods, a modular and scalable design, and the ability to handle smaller, fluctuating biogas flow rates.

According to the American Biogas Council, it is estimated that 8,574 dairy, poultry, and swine farms and 3,878 water resource recovery facilities, are primed for biogas and renewable natural gas production. Biostream is estimated to cover approximately 80% of these use cases with its two standardized configurations. In addition, oil majors such as BP, Shell and Chevron, who are potential partners or customers, have become increasingly engaged in the market and have started to directly fund RNG developments.

Technology

Adsorption

Almost all industrial gases, whether they are inert, flammable, acid, reactive, or oxidizing, can be purified or dried using what is commonly known as adsorption technology. Adsorption technology is used to

remove targeted impurities or separate bulk mixtures. This technology is used in many industrial gas treatment processes including biogas separation and purification, hydrogen production and recovery, air separation, and oxygen enrichment for medical applications as well as drying applications for air, natural gas, carbon monoxide, carbon dioxide, sulfur dioxide, acetylene, propylene, propane, and syngas.

Pressure Swing Adsorption (PSA)

Xebec’s proprietary technology replaces the complex and bulky network of piping and valves used in conventional Pressure Swing Adsorption (PSA) systems with two compact, integrated valves. Especially for biogas to RNG, Xebec’s advanced biogas upgrading systems improve methane recovery rates, reduce operating costs and, consequently, improve the profitability of the project for the owner. Xebec’s rotary valve technology is also integrated into some of its advanced hydrogen and gas purification products which operate at significantly higher cycle speeds (up to 50 cycles/minute) than conventional PSA systems. This results in a direct reduction in the amount of adsorbent material, the size of the equipment and the amount of energy required to purify a given volume of feed gas.

Xebec has one of the most compact, cost-effective and reliable PSA technologies available on the market. With minimal pressure drop, remarkable uptime performance, and occupying a fraction of the footprint of conventional systems, Xebec PSA systems have earned a reputation for easy, flexible installation and problem-free, economic performance.

Proprietary and proven technology
Lowest life cycle cost systems
Reliable, quality reputation with thousands of adsorption units in the field
In-house capabilities in relevant engineering discipline and complete production expertise
A unique, win-win business model: sell innovative products to partners who then develop and serve local markets while Xebec drives aftermarket revenue with its proprietary technology; or offers complete systems to end-users in clearly identified markets
Commercial readiness to take advantage of opportunities driven by government incentives as well as regulations to curb CO2 emissions in transportation

Filtration

Air and gas filters are used to separate liquid droplets, particles or solid contaminants, and oil vapor out of air and gas flows. Xebec offers a range of specialized filters, including natural gas filters for onboard natural gas-fueled vehicles.

Steam Methane Reforming

Hydrogen today is predominantly generated in two different ways. Xebec, through the acquisition of HyGear in December 2020, miniaturized the most common technology to generate hydrogen on-site and in a decentralized manner. They are built inside shipping containers, which makes them easy to transport and small in environmental footprint. These systems are based on the SMR technology, a process by which hydrogen is created out of water and natural gas. These hydrogen generation systems operate autonomously; once the system is installed at a customer’s site and connected to the grid, the system has

no need for an operator. It automatically follows the demand levels and increases or decreases its production based on the requirements of the customer.

Electrolyser

Xebec’s second hydrogen generation technology is based on electrolysis, a process by which hydrogen is generated from water and electricity. The Corporation’s systems are based on alkaline stacks, as this is a reliable and cost-effective solution for electrolysis. These systems are slightly larger compared to the SMR systems and for that reason only the 50 m3/h and 100 m3/h systems are built inside shipping containers. The larger systems, 150 m3/h and 250 m3/h, are both skid mounted. Like the SMR based systems, the electrolyser-based systems are automated, do not require an operator, and can be load-following to ensure the customer always receives the correct volume of hydrogen.

Oxygen and Nitrogen On-site Generation

Using a form of adsorption and membrane-based technology, Xebec leverages these two proprietary technologies for generation of oxygen and nitrogen on-site. With nitrogen and oxygen production directly on site, companies avoid delivery bottlenecks and support the protection of the climate and the environment with the help of environmentally friendly gas generation.

Sales and Marketing

Xebec sells its products and services globally through several channels including direct sales, channel partners, and project developers.

Research and Development

Xebec’s research and development activities are conducted at Xebec’s main facility in Blainville, Quebec and at the HyGear hydrogen R&D facility in Arnhem, The Netherlands. Xebec utilizes in-house resources for its research activities, allowing it to maintain control over its intellectual property related to the design, process and manufacturing of Xebec’s products. Xebec also partner with research departments of many universities.

Xebec’s development activities are presently focused on the development of high-performance biogas upgrading systems, standardization and containerization of biogas systems, generation and purification of RH2 systems for fuel cell vehicles and the development of methanation technology related to energy storage solutions in the field of power-to-gas applications.

International Footprint and Certifications

Xebec has established a direct presence and is focused on North America, Europe, Middle East, Singapore and China; however, our business is global with deliveries to countries like Madagascar, Kazakhstan, Malaysia, Thailand, Japan, South Korea, Germany, France, Italy, Austria, U.S., The Netherlands, United Kingdom, Australia, Singapore, UAE, Mexico, Colombia, Argentina, Nigeria and South Africa to name a few. Xebec works with several partner firms to establish a presence in new markets of interest. Xebec has obtained a variety of product and process certifications for the delivery of its products and systems in several different jurisdictions, including Europe, Canada, the U.S, Africa, Middle East and Asia.

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Manufacturing and Quality Assurance

Xebec employs a combination of internal and external resources to manufacture its products. Through its establishment of a shared service supply chain function in China, Xebec can fully benefit from low-cost country sourcing, making its products highly competitive while maintaining quality through the deployment of supply quality engineers (SQE) at its Chinese facility. In addition, for special projects, Xebec maintains its own welding capability in Blainville, allowing for flexible production schedules, even for complex products and certification processes.

Xebec applies lean manufacturing techniques in its manufacturing facilities in Blainville and Shanghai, carefully managing the purchase of its raw materials and outsourced components to minimize inventories stored at its facilities. Xebec sources materials and components from multiple suppliers and is not dependent on any single supplier for any key components of its products.

Xebec’s Blainville facility is a dedicated pressure vessel welding and assembly facility, whereas Xebec Shanghai’s facility is responsible for assembly only, with pressure vessel welding outsourced to local firms.

Quality assurance is an integral part of Xebec’s management and manufacturing philosophy. Xebec holds many high-level manufacturing certifications from various organizations including the International Organization for Standardization, the Occupational Health and Safety Assessment Series, the American Society of Mechanical Engineers, the Canadian Standards Association for Canada, the Canadian Standards Association for the United States of America, and the National Quality Institute of Canada. Many of Xebec’s products have Canadian Registration Numbers and its facilities in Blainville and Shanghai are ISO 9001 certified.

With the HyGear Acquisition in December 2020, the Corporation’s manufacturing extended to The Netherlands, where HyGear’s main operations, including manufacturing facilites and head office are located.

With the Inmatec Acquisition in February 2021, the Corporation extends it operations with manufacturing facilities in Germany

Intangible Assets

The intangible assets of the Corporation consist mainly of software capitalized development costs, engineering standardisation costs and expenditures on design and production of new substantially improved products and processes when the criteria mentioned in the research and developments accounting policy are met. From business acquisitions, intangible assets consist of trade names and customer relationships. The Corporation reported $15.004 million in intangible assets as at December 31, 2020.

Human Resources

As of December 31, 2020, Xebec proudly counts 401 employees globally within 19 departments in a full range of disciplines from Assembly through Engineering to Welding. Our engineering specialties include Electrical, Mechanical, Chemical, Industrial Design, and Process Engineering. With a wealth of skills including over 45 specialized degrees, 35 technical degrees, 15 masters and seven doctorates, our workforce is also culturally diverse with more than a dozen languages spoken from the global community.

Xebec is committed to a workplace free of discrimination and harassment. Our expectations for individual integrity and ethical, moral, and legal conduct are outlined in our Code of Ethics which applies to everyone in Xebec, including directors, officers, employees, contractors, agents and consultants who act on behalf of Xebec. The Code of Ethics is reviewed and signed annually by all directors, officers, and employees. We have also implemented a Whistleblower email account to provide an avenue for employees to raise concerns about corporate conduct. The Whistleblower Policy includes the reassurance that individuals will be protected from reprisals or victimization for “whistleblowing” in good faith.

Environmental Protection

Xebec is committed to the protection of the environment and to the prevention of pollution in all the markets it serves:

Ensuring workplace safety and ensuring our operations comply with all applicable health, safety, and environmental legislation, industry codes, and standards.
Collaborating with partners and industry stakeholders in the protection of the environment, the efficient use of resources, and the implementation of pollution mitigating practices.
Developing products and technologies that are safe for their intended use, efficient in their use of energy, preserving environmental health, and safeguarding employees, customers, and the general public from injuries or health hazards.
Mitigating the environmental impacts of our operations, assessing our environmental impact and setting internal targets for improvement.
Being an environmentally responsible neighbour in the communities where we operate.
Evaluating our environmental performance through regular auditing and assessment of our environmental, social, and governance (ESG) policy. We will communicate the appropriate

information to our stakeholders including our Board, employees, shareholders, governmental agencies, and the general public.

Sustainability Approach

Xebec abides by the Brundtland Commission’s definition of sustainability, that is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition guides us in reconciling our business interests with our economic, social, and environmental responsibilities. Therefore, we seek to operate in ways that secure our long-term economic performance while avoiding short-term behavior that is socially detrimental or environmentally wasteful.

Furthermore, we strive to create, along with many of our industry partners and competitors, leading-edge technologies that meet or exceed the requirements of regulation and industry codes and standards to shift the transportation sector to alternative fuels, delivering low-emission fuel solutions that will meet the demand for high-efficiency, high-performance, and low-carbon transportation needs.

Finally, we are committed to a continuous improvement process of managing, measuring, and reporting on those ESG issues that are intrinsic to our business activities. To this end, in 2020 we have chosen to base our reporting on our material ESG issues on standards of the Sustainability Accounting Standard Board (SASB) for the Industrial Machinery & Goods industry of the Resource Transformation sector. We have also used the framework provided by the Task force on Climate-related Financial Disclosures (TCFD). The Corporation published its first ESG report in August 2020 and intends to publish a second report in 2021.

Industry Overview, Trends & Strategy

Global Greenhouse Gas Reduction Goals

Concerns regarding greenhouse gas (“ GHG ”) emissions and their impact on global warming has prompted the introduction of government regulations and worldwide inter-government coordination (such as COP21) trying to reduce these harmful emissions. The challenges with emission reductions are the costs associated with any such scheme. Many jurisdictions have adopted some sort of carbon pricing and/or carbon credits that put a price on carbon. Moreover, in the last 12 to 18 months it has become much clearer that Governments in France, Italy, Canada, and California are starting to take a hard look at renewable natural gas (“ RNG ”) as a fuel suitable in reducing emissions associated with transportation. In the U.S., the transportation sector accounts for 29% of all GHG emissions, and consequently many countries and states have begun the introduction of low carbon fuel standard (“ LCFS ”). The near-term intensifying impact of Climate Change on weather patterns and our environment will accelerate the transition to a low carbon future. (source: https://www.epa.gov/ghgemissions/sources-greenhouse-gasemissions).

Organic Waste Management

Animal manure represents a significant source of air emissions (odor and volatile organics) and groundwater contamination in the agricultural sector worldwide. Anaerobic digestion of this waste material generates a more environmentally benign solid that can be spread directly on crop land, with a lower risk of groundwater contamination. This anaerobic digestion process produces raw biogas which is available for upgrading to RNG. Local governments around the world are trying to divert organic waste from landfills to organic waste treatment facilities, resulting in corresponding legislation and requiring infrastructure investments into waste treatment facilities worldwide.

Low natural gas prices and low carbon fuels

In just five years, natural gas prices have declined almost 50% (source: Henry Hub Natural Gas Spot Prices, EIA). There is an oversupply and basic economics dictates that too much supply and too little demand results in lower prices. Today natural gas is one of the lowest cost and cleanest transportation fuels available. The technology for the use of natural gas in heavy-duty transportation is mature and reliable. The combination or displacement of natural gas with RNG can lead to ultra-low, or near zero emission heavy-duty vehicles (class 7 and 8), making it an ideal solution for displacement for diesel fuels, and helping us move toward a lower emission transportation future.

Our Business Segments

Cleantech (Systems)

Renewable Natural Gas

RNG is a significant opportunity for Xebec in the immediate term. Climate change is driving the energy transition toward 100% renewables, including the displacement of fossil natural gas with RNG. As much as wind and solar have been the prevalent renewable energy over the past 20 years, we are now at the - - - cusp of similar explosive growth for RNG. (source: https://theconversation.com/the global community is-finally-acting-on- climate-change-but-we-need-to-switch-to-renewable-energy-faster-119841).

Climate change is the macroeconomic driver for the adoption of renewable, zero-carbon energy, but for RNG we are seeing an additional driver for its adoption, namely gas utilities. As electricity utilities are successfully shifting to renewable solar and wind energy, gas utilities are 20 to 25 years behind in their adoption of renewable energy. It is leaving them in a precarious position as they face declining demand for their products and services, driven by an acceleration toward electrification of their customer base, especially in home-heating, water heaters, and gas stoves. Investors in gas utilities are starting to see the prospect of significant losses and hundreds of billions of dollars of stranded gas assets if the business model does not shift quickly towards renewable gases.

The good news is the increasing alignment between policymakers and gas utilities to support this shift toward RNG with appropriate legislation and regulation. In Europe, several countries have announced targets to be completely fossil fuel-free by 2050, implying a complete shift to 100% RNG. Accordingly, gas utilities are assessing their transition timelines and some major energy players in Europe, like Engie in France (former Gaz de France), have announced their own plans to be 100% renewable gas by 2050 (source: https://www.snam.it/en/Media/Press-releases/2018/gas-for-climate.html).

RNG Market Size

The urgency, driven by these new environmental targets and governmental policy/regulations incentivizing utilities and businesses to use renewable gases, has resulted in prices for RNG anywhere from $9 to $105 MMBtu, or 3 to 30 times the price of fossil natural gas. (source: https://www.epa.gov/sites/production/files/2018-11/documents/7._deanna_haines-508.pdf).
Xebec estimates that system and equipment sales currently exceed $6B in Xebec target markets and, based on announced projects in these regions, Xebec estimates a potential of ~1,700 systems.

In addition, as the cost of biogas products continues to decrease, there is a significant global market for small scale biogas solutions in the sub 250-300 Nm3/hr flow rates which Xebec estimates can be hundreds of systems per year in each of the markets we operate in.

The transition toward 100% RNG is expected to involve three phases. It starts with anaerobic digestion (organic waste converted to RNG), followed by pyro-gasification (the conversion of cellulosic forestry waste to RNG) and then followed by Power-to-Gas (“ P2G ”) (the conversion of electricity to gas for energy storage). Xebec has a position in each of these commercial opportunities, either through gas purification or through methanation technology which is applicable to P2G.

Hydrogen and Renewable Hydrogen (RH2)

As a result of the recent acquisition of HyGear, Xebec acquired a leading small-scale steam methane reforming and electrolysis technology and a reference base of more than 66 active hydrogen generation installations worldwide to accelerate entry into the fast-growing hydrogen fuel market. The acquisition of HyGear positions Xebec to execute and accelerate its distributed hydrogen generation strategy. The acquisition of new technology, and the access to new markets enables Xebec to launch a commercially viable renewable (green) hydrogen product offering.

Xebec considers hydrogen purification for fuel cell applications and Renewable Hydrogen as fuel for Fuel Cell Electric Vehicles (“ FCEV ”) to be another significant major opportunity over the next decade and beyond. As fuel cells gain traction, the market will look for specialized purification solutions in a compact design. Xebec is already working with several fuel cell manufacturers in Europe, North America and China to provide such equipment to their refueling and/or hydrogen production equipment.

Xebec has also formed partnerships in the hydrogen space to offer integrated systems, from hydrogen generation to refueling, namely with FuruiHP in China, and JNK Heaters in South Korea. In Shanghai, Xebec Joint Venture partner, Shenergy Energy, has been nominated to build-out the Shanghai hydrogen refueling infrastructure. Hydrogen generation and purification opportunities in China are currently found primarily in the refinery and petrol-chemical industries for off-gas purification. China will most likely emerge as the fuel cell leader over the next 10 years with plans to deploy 1 million FCEVs by 2030 and with a refueling infrastructure target of over 1,000 hydrogen refueling stations. Xebec Shanghai is already well positioned to actively promote our technology and capabilities. Xebec’s revenue growth over the last 18 months in China has been driven by hydrogen purification system sales.

RH2 Market Size

The emerging hydrogen demand is driven by the need for hydrogen as an energy carrier for the transportation and energy storage markets.

Organizations and countries around the world are becoming deeply invested in hydrogen such as Hyundai’s $6.7 billion investment to boost fuel-cell output, Germany’s Green-Hydrogen research funding of €780 million, Japan’s Ministry of Economy, Trade, and Industry’s hydrogen funding of approximately $560 million for 2019. (sources: https://www.prnewswire.com/news-releases/gtai-germany-pledges300-million-for-green-hydrogen-research- 300934818.html; https://www.h2-view.com/story/australianfirst-government-creates-300m-fund-for-hydrogen-projects/;

https://www.mondaq.com/unitedstates/renewables/877206/the-emerging-hydrogen-economy)

Fuel Cell & Hydrogen Energy Association’s pathway report shows by 2025, total U.S hydrogen demand could reach 13 million metric tons across applications, there could be 125,000 material

handling FCEVs in the field, and up to 200,000 light-, medium-, and heavy-duty FCEVs could travel on US roads. Each light duty FCEV requires about 0.5 to 1.5 kg of hydrogen per day while a heavyduty FCEV could use 20-50 kg/day. China’s installed capacity of hydrogen fuel cells has soared sixfold in the first seven months of 2019. China’s FCEV strategy is mainly focused on heavy-duty trucks and buses where the hydrogen consumption is much larger and the demand for hydrogen is higher.

As the on-road FCEV market evolves globally, the need for renewable hydrogen (RH2) is expected to grow. The renewable hydrogen can be produced through electrolysis using renewable electricity, or through steam methane reforming of RNG (upgraded biogas to RNG). Consequently, it has an extremely low carbon content compared to fossil hydrogen, making it ideal for low carbon transport fuels.
One of the pathways to make RH2 is the reforming of RNG in a steam methane reformer (SMR). As announced by industry participants like Nikola, Budweiser, Cummins and Hanwha, there is an urgent need to deploy a distributed hydrogen fueling infrastructure to support the launch of the heavy-duty trucking fleets with fuel cells. The potential for on-site hydrogen generators at truck stops is significant, and according to available data could initially be 600 to 1,000 on-site containerized SMR units.

Industrial Service and Support

Service, maintenance and operational support are foundational components in the clean energy business where multi-year, multi-million-dollar project commitments hinge on reputation, reliability, and resilience. With over 50 years of experience in adsorption technology, Xebec has been manufacturing and servicing industrial equipment for compressed air and gas dehydration, separation, purification and filtration worldwide. We have supplied more than 9,000 adsorption systems to more than 1,500 customers for a wide variety of industrial applications such as manufacturing, food processing, medical & pharma, and petrochemical industries. This historically high margin business creates a significant recurring revenue base from sales of parts and service.

Industrial Parts and Service Market Size

Xebec estimates that the U.S. market is approximately US$700 to US$800 million for Xebec-related products so the Canadian market for similar products could be approximately CDN$60 to $70 million, of which Xebec currently has a 9% market share, with a target of 30% to 40% by 2025.

Revenues per Reportable Segments

The table below shows, for each of the two most recently completed financial years, as dollar amounts, the revenues for each reportable segment that accounted for more than 15% of total consolidated revenue for the applicable financial year derived from.

	Revenues for the twelve-month period ended December 31 In Millions of$	Revenues for the twelve-month period ended December 31 In Millions of$
	2020	2019
Cleantech(Systems)	28.1	37.8
Industrial Products and Service (Support)	28.4	11.5

Overall Business Strategy

1. Offer Low Carbon Transportation Fuels Through Significant Expansion of our Biogas Upgrading Plants

Biogas is a renewable gaseous fuel containing approximately 50% to 70% methane and 30% to 40% carbon dioxide. Biogas is produced as a by-product from the decomposition of organic waste in landfills, municipal wastewater and anaerobic digesters that process agricultural or municipal organic wastes. Rising demand for low carbon fuels, concerns about energy prices and increasing demand for the supply of renewable energy have increased attention on recovering energy from these renewable sources of methane, either by combusting the biogas to generate electricity or heat, or upgrading the biogas to high purity methane which can be injected into the natural gas distribution grid or used as a transportation fuel. In addition, anaerobic digestion of animal manure and other agricultural wastes offers a number of additional benefits to farmers, including reducing air and water pollution, odor management and the production of environmentally benign co-products including organic fertilizer and animal bedding material.

Historically, biogas from anaerobic digestion systems or landfill gas from landfills converted the energy in their gas streams into electricity by running the gas into gas turbines or gas engines. Electricity produced from these generators is then sold to the national power grid. To date, electricity generation has been the most common option for recovering energy from biogas. However, we estimate that electrical generators are about 35% efficient in producing energy, whereas upgraded biogas to RNG, when injected into the pipeline grid or used as transportation fuel, can be about 80% efficient.

The recognition that renewable electricity can be produced through a variety of means, including solar, wind, hydro, geothermal, etc. has led to a rethink of biogas as an electricity source. A serious challenge for most governments lies in the reduction of emissions from transportation, and the difficulty in finding readily available low to zero- emission fuels. The recognition that there will be only a very limited number of low carbon transportation fuels in the future, namely RNG, RH2, and renewable electricity, have led to a much stronger focus on the short-term availability of RNG in the transportation fuel mix. Governments have also continued with the build-out of low carbon compressed natural gas (“ CNG ”) and liquefied natural gas (“ LNG ”) infrastructure in North America and parts of Europe. Upgrading of biogas to pipeline quality RNG allows the methane resource to be stored and transported to CNG refueling stations continent-wide. RNG is readily sold as a CNG or LNG fuel for use in transportation, the associated carbon credits are actively traded, and the monetary value captured by the related parties.

The biogas market in the U.S. is in its early stages of development. Regulatory mandates and incentives are being reviewed annually and updated to reflect technological advancements, current economic climate, and actual production and demand. In Canada, the government’s commitment to making budgetary funds available to companies involved in cleantech - including that necessary for the upgrading of biogas – and the publication of the Clean Fuels Standards by the Canadian government, will likely be a strong driver for growth in the biogas industry.

Valuation of RNG is primarily determined by the Renewable Fuel Standard (“ RFS ”) and LCFS incentive programs, with the RFS making up the bulk of the valuation. California has shown commitment to extending its LCFS program through 2030, however, there is uncertainty about the annual renewable fuel targets under the RFS program after 2022. In Canada, both federal and provincial governments have expressed a firm desire to encourage RNG production, with British Columbia, Quebec, and Ontario leading the way. Although the RFS is a U.S. federal government incentive, Canadian RNG producers may also benefit from the program through services of intermediaries. The current valuation of RNG is between $9 to $30/GJ (or per m3) due to the combination of these factors. (Source: http://biogasassociation.ca/index.php/news_and_events/update_single/484).

In Europe, France and Italy are taking an active role in the build-out of biogas upgrading facilities and the use of RNG as a low carbon fuel source. European activities are driven by the European Renewable Energy Directive (“ RED ”), which obliges member countries to have at least 10% renewable fuels in their fuels mix. Prices for RNG in Europe vary from country to country but in France and Italy RNG currently has a value of around $25/GJ to $50/GJ (source: GRDF, SNAM websites).

2. Enable Rapid Expansion of Natural Gas Vehicles (NGVs) and Hydrogen Refueling Infrastructure

A desire for energy security, cheaper and cleaner fuels, and improved air quality make renewable gas an interesting alternative source of energy for motor vehicle propulsion. Natural gas powers about 165,000 vehicles in the United States, around 1 million in Italy, and approx. 14,000 vehicles in France, while roughly 27 million vehicles operate worldwide (source: http://www.iangv.org/2016/12/ngv-statistics-updated/). NGVs, which can run on CNG, are good choices for high-mileage, centrally fueled fleets that operate within a limited area (return to base fleets). For vehicles needing to travel long distances, LNG is a good choice. The advantages of natural gas as a transportation fuel include its domestic availability, widespread distribution infrastructure, low cost, and inherently clean-burning qualities.

According to the Fuel Cell & Hydrogen Energy Association’s pathway report, the versatility of hydrogen makes it a key enabler of the renewable energy system, an energy vector that can be transported and stored, and a fuel for the transportation sector, heating of buildings and providing heat and feedstock to industry. It can reduce both carbon and local emissions, increase energy security and strengthen the economy, as well as support the deployment of renewable power generation such as wind, solar, nuclear and hydro. (source: http://www.fchea.org/us-hydrogen-study).

3. Focus on Profitable Growth for a Sustainable Future

Profitable growth for a sustainable future is not only a key motivator for the investment community but the key driver to attract and retain great talent. Xebec recognizes that successful companies need engaged, motivated and skilled employees who are committed to their work, their environment, and their colleagues. Employees feel engaged when they receive positive interpersonal and workplace support. They feel motivated when they know they are making a difference. They feel valued when they see their work appropriately compensated. As such, Xebec leaders must continuously focus on profitable growth while serving as role models through their ethical behavior and their personal involvement in performance reviews, communicating, coaching, and developing future leaders.

RISK FACTORS

Risk Factors - Internal

Xebec’s ability to generate revenue and profit from its operations is subject to a number of risks and uncertainties. The risks and uncertainties described below are not the only ones Xebec faces. Additional risks and uncertainties, including those that Xebec is not aware of now, or that management may believe are currently not material, may also adversely affect the ability to maintain a viable business. An investment in our business involves risk, and readers should carefully consider the risks described below and in our annual and quarterly management’s discussion and analysis that are publicly available on SEDAR at www.sedar.com.

Liquidity

The consolidated financial statements have been prepared on the basis of the going concern assumption, meaning that the Corporation will be able to realize its assets and discharge its liabilities in the normal course of operations. The Corporation has realized an operating loss of $29.2 million, had cash outflows from operating activities of $26.8 million for the year ended December 31, 2020 and finished the year with cash and cash restricted amounting to $168.6 million, positive working capital of $171.2 million and had access to credit facilities totaling $3.6 million of which $1.0 million has been used. During the year, management undertook various initiatives and developed a plan to manage its operating and liquidity risks in light of prevailing economic conditions. Management is also currently seeking alternative financings for its operations. The Corporation has prepared a budget for 2021 for which management believes the assumptions are reasonable. Achieving budgeted results is dependent on improving the volume of revenues in Canada, United States, Europe and China, delivering on sales and contract schedules, meeting expected overall operating margin levels and controlling general and administrative costs.

The Corporation is thus faced with uncertainties that may have an impact on future operating results and liquidity. These uncertainties include reduced spending in biogas projects reflecting the weakness of the market, COVID-19 negative impact, fluctuations in foreign currency rates and achieving the Corporation’s business plan goals as mentioned in the previous paragraph, which includes the development of a new business segment. While management believes it has developed planned courses of action to mitigate operating and liquidity risks, there is no assurance that management will be able to achieve its business plan and maintain the necessary liquidity if events or conditions develop that are not consistent with management’s expectations, key budget assumptions for 2021 or planned courses of action. Therefore, the Corporation may require additional external funding and there is no assurance that it would be successful. It is possible that future changes in capital markets conditions could result in such funding not being available when required or at acceptable costs. The Corporation is unable to predict the possible effects, if any, of such uncertainties and the potential adjustments to the carrying values of assets and liabilities that could be needed should the Corporation have insufficient liquidity. Such adjustments could be material.

There can be no assurance that Xebec will operate profitably in the future. Xebec’s operating results may vary from quarter to quarter, depending on a number of factors, including:

the introduction and market acceptance of new products and technologies and new variations of existing products and technologies;
the activities of our competitors;
our ability to control our expenses;
variations in the timing of orders and subsequent deliveries;
the length of our customers’ approval processes or market tests;
changes in our mix of products and technologies;
changes in capital spending;
unforeseeable or unavoidable delays in larger-scale customer projects;
higher interest rates; and
general economic conditions

Any variation in the rate and timing of conversion of our sales prospects into revenue could cause us to plan or budget inaccurately, and those variations could adversely affect our financial results. Delays, reductions in amounts or cancellations of customers’ purchases could adversely affect our business,

financial condition and results of operations. In light of the foregoing, quarter-to-quarter comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of likely future performance or annual operating results. Reductions in revenue or net income between quarters or our failure to achieve expected quarterly earnings per share could cause the market price of our Common Shares to decline or adversely affect our business, financial condition and results of operations.

We may be unable to raise additional capital.

Execution of our business plan and our commercial viability could be jeopardized if we are unable to raise additional funds for our commercialization plans, to fund working capital, R&D projects, sales, marketing and product development activities, and other business opportunities. We attempt to mitigate this risk by generating funds from a variety of sources including: through the sale of our commercial products, through the sale of non- core assets including long-term investments, through funding from government agencies, industry and business partners, and through the issuance of shares or debt in the public equity markets or through strategic investors. In addition, we try to maintain reserves of cash and short-term investments and seek to obtain funding commitments before we take on any significant incremental initiatives. There can be no assurance that we will be able to secure additional funding, or funding on terms acceptable to us, to pursue our commercialization plans.

Xebec depends upon a limited number of customers for potential revenue due to the nature of its markets.

To date, a small number of customers have accounted for a majority of Xebec’s revenues. As Xebec’s gas purification business expands, the Corporation expects that revenue distribution will be over a larger number of different customers. For the year ended December 31, 2020, sales to five principal customers accounted for approximately 43% of Xebec’s total revenue. For the year ended December 31, 2019, sales to five principal customers accounted for approximately 40% of Xebec’s total revenue. The loss of, or a reduction in, purchase orders or anticipated purchase orders from these five principal customers could have a material adverse effect on the Corporation’s business, financial condition and results of operations. Additionally, if one of the Corporation’s customers is unable to meet its commitments to Xebec, the Corporation’s business, financial condition and results of operations could be adversely affected.

Integration of HyGear and Inmatec’s Business

Although Xebec believes that the operations of HyGear and Xebec can be successfully integrated, as well as the operations relating to the Inmatec Acquisition, there can be no assurance that this will be the case. Xebec could face impediments in its ability to implement its integration strategy. The integration process may also require substantial attention from Management and divert its focus and resources from other strategic opportunities and from operational matters.

Specifically, the successful integration and management of Xebec and HyGear as a combined entity is subject to numerous risks that could adversely affect the Corporation’s growth and profitability, including: (i) the risk that management may not be able to successfully manage HyGear’s operations (ii) the risk that Xebec’s operational, financial and management systems may be incompatible with, or inadequate to effectively integrate and manage systems acquired from HyGear (iii) the risk that the HyGearAcquisition may require financial resources that could otherwise be used in the development of other aspects of Xebec’s business, (v) the risk that the integration process may result in the disruption of Xebec’s and HyGear’s ongoing business and customer and employee relationships (vi) the risk that HyGear may not obtain the consents required under agreements entered into with third parties (vii) the risk that the

integration process may result in operational problems, costs, expenses, liabilities, including loss of contracts and customers, and (viii) the risk that key management or employees of Xebec and of HyGear may not be retained or may leave following the HyGearAcquisition, which could have a significant impact on the combined entity’s operations, specifically if such departures were to occur in positions or roles which require significant technical and operational knowledge and for which qualified replacement personnel is scarce. The successful integration of the HyGear Acquisition will also require cooperation between the employees of Xebec and HyGear and is subject to the risk that personnel from HyGear’s and Xebec’s existing business may not be able to work together successfully, which could adversely impact the Corporation’s business, financial condition and results of operations. The Inmatec Acquisition is subject to substantially similar risks.

Xebec’s future financial performance depends in part upon its ability to effectively combine the operations of the acquired business into its existing operations and achieve identified cost savings and other synergies. If it is unable to identify and correct operational or financial weaknesses in the acquired business or to achieve the projected cost savings, its operating results and cash flows could be negatively impacted. Failure to expand operational systems and controls or to integrate appropriate personnel at a pace consistent with its growth could also adversely affect its operating results.

Possible Failure to Realize Anticipated Benefits of the HyGear Acquisition and the Inmatec Acquisition

Xebec believes that the HyGear Acquisition will provide certain benefits to the Corporation. Achieving the benefits of the Acquisition will depend in part on the Corporation successfully consolidating functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as on Xebec’s ability to realize the opportunities from combining HyGear’s businesses and operations with those of Xebec. A variety of factors, including the risk factors set forth in this AIF and the documents incorporated by reference herein, may also adversely affect the likelihood of the anticipated benefits of the HyGear Acquisition materializing for the Corporation or from occurring within the time periods anticipated by the Corporation. Moreover, even if Xebec is able to integrate HyGear’s business and operations successfully, this integration may not result in the realization of the full benefits that the Corporation currently expects within the anticipated time frame or at all. Further, while the Corporation anticipates that certain expenses will be incurred, such expenses are difficult to estimate accurately, and may exceed current estimates. Accordingly, the benefits from the HyGear Acquisition may be offset by unexpected costs incurred or delays in integrating HyGear, which could cause the Corporation’s financial and operation assumptions with respect to the HyGear Acquisition to be inaccurate. Xebec also believes that the the Inmatec Acquisition is subject to substantially the same risks and assumptions.

Possible Failure to Achieve the Full Amount of Anticipated Cost Synergies

Although management anticipates some cost synergies to be achieved over a period of time following the HyGear Acquisition and the Inmatec Acquisition, there can be no cetainty the Corporation will achieve these cost synergies over time, or at all. In addition, expenses required to realize the synergies and the sources of the synergies could differ materially from management expectations and Xebec cannot assure investors that the Corporation will achieve any level of cost synergies.

Potential Undisclosed Costs or Liabilities Associated with the Acquisition

Following the HyGear Acquisition, the Corporation is responsible for most historical liabilities of HyGear. Although the Corporation has conducted what it believes to be a prudent level of investigation in connection with the HyGear Acquisition, there may be liabilities and contingences that the Corporation failed to discover or was unable to quantify in its due diligence which it conducted prior to entering into the Purchase Agreement and which could have a material adverse effect on the Corporation’s business and financial condition. Only certain of these events may entitle Xebec to claim indemnification under the Purchase Agreement and even if indemnification is available, it may not offset such liabilities and contingencies.

In connection with the Acquisition, the Corporation has subscribed to the W&I Insurance Policy, with coverage of up to EUR 20,000,000 ($31,060,000). Although the Corporation subscribed to such policy, the representation and warranty insurance policy is subject to certain exclusions and limitations. In addition, there may be circumstances for which the insurer may elect to limit such coverage or refuse to indemnify the Corporation or situations for which the coverage provided under the representation and warranty insurance policy may not be sufficient or applicable. The existence of any undisclosed liabilities and the Corporation’s inability to claim indemnification from the seller or the provider of the representation and warranty insurance policy could have a material adverse effect on the Corporation.

The discovery of any material liabilities, or the inability to obtain full indemnification for such liabilities, could have a material adverse effect on the Corporation’s business, financial condition, prospects and/or results of operations.

The Inmatec Acquisition is subject to substantially the same risks.

Information provided by HyGear

Some of the information relating to HyGear in this AIF has been based on information made available to the Corporation by HyGear as part of the due diligence undertaken for the purposes of the HyGear Acquisition and upon information made publicly available by HyGear. While the Corporation, after conducting due diligence that it believes to be a prudent level of investigation, believes it to be accurate in all material respects, there can be no assurance regarding the accuracy and completeness of such information. While the Corporation has no reason to believe the information provided in this AIF in relation to HyGear is misleading, untrue or incomplete, there are risks and uncertainties in including in this short form prospectus information obtained from third parties, including with respect to facts or circumstances that would affect the completeness or accuracy of such information and which are unknown to the Corporation.

Xebec sells its products to a limited number of customers, some of which may experience financial difficulty, which may result in bad debt for Xebec

Xebec sells to customers of varying financial strengths in various geographic locations. Some of these customers, particularly smaller companies with limited financial resources, may be unable to pay their invoices when they become due. Xebec mitigates this risk through its standard contract terms for significant equipment sales, which require payment of the majority of the contract value prior to shipment. Nevertheless, it is possible that some of Xebec’s customers will default on certain amounts owing.

We may have difficulty managing faster than anticipated product expansions

As products are launched, sales may be more than we expect. During periods of quicker than anticipated expansion, we may have difficulty expanding the scope of our operations to match the increased demand. In addition, we may be required to place more reliance on our strategic partners and suppliers, some of whom may not be capable of meeting our production demands in terms of timing, quantity, quality or cost. Difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any rapid expansion could harm our business, prospects, results of operations or financial condition.

New products and technological change.

The markets for the Corporation’s products, technologies and services are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Xebec’s products embody complex technology and are designed to be compatible with current and evolving industry standards and Xebec invests significant resources in the development of products for the markets it serves. Xebec’s success continues to depend upon market acceptance of its existing products, technologies and services, its ability to enhance those products, technologies and services and its ability to introduce new products, technologies and services to meet changing customer requirements. Any delays in developing new products or enhancements or any failure by such products, technologies or services or enhancements to gain market acceptance could adversely affect the business, financial condition and results of operations.

We could be adversely affected by the operations of our joint ventures and joint venture partners.

We conduct certain of our operations through joint ventures under contractual arrangements under which we share some or all management responsibilities with one or more partners. Joint venture operations carry a range of risks, including those relating to: (1) failure of our joint venture partner(s) to satisfy contractual obligations; (2) strategic objectives of joint venture partner(s) that may differ from our own; (3) potential conflicts between us and our joint venture partner(s) that lead to delays in decisionmaking; and (4) additional complexity and limitations to implement some or all of our operational policies, Code of Conduct and controls, or control legal and regulatory compliance, within the joint venture(s). Employees or agents of our joint venture or joint venture partners may undertake actions that would result in a violation of law, including but not limited to, tax laws, customs laws, environmental laws, labor laws, permitting laws and regulations, industry laws or international anti-corruption and anti-bribery laws, including Canadian anti-corruption laws and the U.S. Foreign Corrupt Practices Act . The likelihood of such occurrences and their potential effect on us vary depending on the joint venture arrangement, however, the occurrence of any such risks could have an adverse effect on our operations, profitability and reputation.

We may not realize the anticipated benefits from joint ventures, investments or acquisitions.

Our joint ventures, and any future joint venture, investment or acquisition, could expose us to certain liabilities, including those that we fail or are unable to identify during the investment or acquisition process. In addition, joint ventures and acquisitions often result in difficulties in integration, and, if such difficulties were to occur, they could adversely affect our results. We have historically and may, in the future, seek to expand our business through acquisitions, investments and/or joint ventures. Any such transactions will be in part dependent on management’s ability to identify, acquire and develop suitable acquisition targets in both new and existing markets. In certain circumstances, acceptable acquisition

targets might not be available. Acquisitions, specifically, involve a number of risks including: (i) the possibility that we, as a successor owner, may be legally and financially responsible for liabilities of prior owners; (ii) the possibility that we may pay more than the acquired company or assets are worth; (iii) the additional expenses associated with completing an acquisition and amortizing any acquired intangible assets; (iv) the difficulty of integrating the operations and employees of an acquired business; (v)the challenge of implementing uniform standards, controls, procedures and policies throughout an acquired business; (vi) the inability to integrate, train, retain and motivate key employees of an acquired business; and (vii) the potential disruption of our ongoing business and the distraction of management from our day-to-day operations. These risks and difficulties, if they materialize, could disrupt our ongoing business, distract management, result in the loss of key human capital, increase expenses and otherwise have a material adverse effect on our business, results of operations and financial performance.

Warranty claims could diminish our margins

There is a risk that the warranty accrual included in our cost of product revenue is not sufficient, and we may recognize additional expenses, including those related to litigation, as a result of warranty claims in excess of our current expectations. Such warranty claims may necessitate a re-design, re-specification, a change in manufacturing processes, and/or recall of our products, which may have an adverse impact on our finances and on existing or future sales. Although we attempt to mitigate against these risks through our sales and marketing initiatives and our product development, quality assurance, support and service programs, there can be no assurance that such initiatives and programs are adequate or that sales of our commercial products will continue to grow and contribute financially. Even in the absence of any warranty claims, a product deficiency such as a manufacturing defect or a safety issue could be identified, necessitating a product recall, which could itself have an adverse impact on our finances and on existing or future sales.

Xebec’s strategy for the sale of its products depends upon developing key relationships with a number of customers who will incorporate its products and technologies into theirs.

Other than with respect to a limited number of specific markets, the success of Xebec’s business depends on its ability to develop relationships with parties who will integrate Xebec’s products and technologies into their products. The ability of Xebec to sell its products and technologies to its target markets depends to a significant extent upon its partners’ worldwide sales and distribution network and service capabilities. The inability to effectively leverage off these sales and distribution networks could adversely affect the business, financial condition and results of operations.

Xebec has foreign currency risk

The majority of Xebec’s revenues are in Canadian and U.S. dollars, Chinese Yuan and Euros, while a significant portion of the operating expenses are in Canadian dollars, Chinese Yuan and Euros. Foreign exchange gains and losses are included in results from operations. A large decline in the U.S. dollar, Chinese Yuan or Euros relative to the Canadian dollar could impair revenues, margins, and other financial results. Xebec has not entered into foreign exchange contracts to hedge against gains and losses from foreign currency fluctuations.

Xebec will need to recruit, train and retain key management and other qualified personnel to successfully expand its business

Xebec’s future success will depend in large part upon its ability to recruit and retain experienced research and development, engineering, manufacturing, operating, sales and marketing, customer service, and management personnel. If Xebec does not attract and retain such personnel, it may not be able to expand its business. Competition for qualified personnel in its industry is intense. Even if Xebec invests significant resources to recruit, train, and retain qualified personnel, Xebec may not be successful in its efforts. Xebec’s success also depends upon the continuing contribution of its key management, research, product development, engineering, marketing, and manufacturing personnel, many of whom would be difficult to replace. While Xebec has entered into employment agreements and/or confidentiality and noncompetition agreements with some of its key employees, Xebec could be significantly adversely impacted if any of its key employees become unable or unwilling to continue their employment with the Corporation. The loss of key employees to a competitor and an inability to attract and retain experienced key employees could adversely affect the business, financial condition and results of operations.

Xebec faces significant competition from other developers and manufacturers of gas purification systems

Xebec competes with a number of companies that manufacture conventional gas purification equipment and other competing technologies. New developments in technology may adversely affect the development or sale of some or all of Xebec’s products and technologies or make its products and technologies uncompetitive or obsolete. Other companies, some of which might have substantially greater resources than Xebec does, are currently engaged in the development of products and technologies that are similar to, and competitive with, many of Xebec’s products and technologies. Xebec’s competition includes numerous companies located throughout the world, some of which may have advantages over Xebec in terms of government incentives, labor, component costs and technology. Each of these competitors has the potential to capture market share in Xebec’s target markets, which could harm its position in the industry. New competitors may also emerge, and entire product lines may be threatened by new technologies or market trends which reduce the commercial viability of Xebec’s product lines. In addition, Xebec’s customers could potentially become its competitors if they decide to develop and manufacture their own gas purification systems. As the markets for gas purification systems develop, other large industrial companies may enter these fields and compete with Xebec. These large industrial companies may have research and development, manufacturing, marketing and sales resources necessary to deliver gas purification systems more quickly and effectively than Xebec does. Xebec may not be able to compete effectively with all of these competitors, which could adversely affect its business, financial condition and results of operations.

Risks Associated to Protection of Technology and Development

There can be no assurances that Xebec will meet its targeted development or integration timelines, secure components at reasonable prices such that it will be able to offer its products and technologies at competitive pricing, or that Xebec can continue to enhance and improve the functionality and features of its technologies. In addition, Xebec depends on its ability to develop and maintain proprietary aspects of its technology, if and when required.

Xebec’s products incorporate complex technology and software. Accordingly, they may contain errors that could be detected at any point. Such errors could materially and adversely affect Xebec’s reputation, or that of its customers and partners, resulting in claims and/or significant costs to Xebec, and/or cause

customers and other parties to abandon Xebec and impair its ability to market and sell its products in the future.

Risks Associated to Project Execution

In the normal course of its business, Xebec may be subject to various litigation, claims, and legal actions arising from its contractual liability with respect to project execution, and that can implicate, although not exclusively, subcontractors, suppliers, employees and customers.

Xebec is dependent upon third party suppliers for materials and components for its products

Xebec relies upon third party suppliers to provide materials and components for its products. A supplier’s failure to provide materials or components in a timely manner, or to provide materials and components that meet Xebec’s quality, quantity or cost requirements, or its inability to obtain substitute materials and components in a timely manner or on terms acceptable to Xebec, may harm Xebec’s ability to manufacture its products. To the extent that Xebec is unable to develop and patent its own technology and manufacturing processes, and to the extent that the processes which its suppliers use to manufacture materials and components are proprietary, Xebec may be unable to obtain comparable materials or components from alternative suppliers, and that could adversely affect its ability to produce commercially viable products. In addition, Xebec regularly outsources limited aspects of the manufacturing of its products to contract manufacturers. A significant increase in the price of the services provided by these manufacturers, or delays in their deliveries, could adversely affect Xebec’s business, financial condition and results of operations.

Xebec is subject to a variety of governmental regulations

Xebec is subject to a variety of federal, provincial, state, local and international laws and regulations relating namely to the environment, health and safety, export controls, currency exchange, labor and employment and taxation, namely in Canada, U.S., Europe, China and Singapore. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Failure to comply with these laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time to time, as part of Xebec’s operations, including newly acquired operations, Xebec may be subject to compliance audits by regulatory authorities in the various countries in which it operates.

Changes in environmental and regulatory policies could hurt the market for our products

We currently benefit from, and hope to continue to benefit from, certain government environmental policies, mandates and regulations around the world, most significantly in the U.S. and in Europe. Examples of such regulations include those that provide economic incentives, subsidies, tax credits and other benefits to purchasers of low emission fuels and/or renewable fuels. There can be no assurance that these policies, mandates and regulations will be continued. Incumbent industry participants with a vested interest in gasoline and diesel, many of which have substantially greater resources than we do, may invest significant time and money in an effort to influence environmental regulations in ways that delay or repeal requirements for low emissions fuel standards. If these are discontinued or if current requirements are relaxed, this may have a material impact on our competitive position.

Natural gas, hydrogen and products that use these gases entail inherent safety and environmental risks that may result in substantial liability to us

Natural gas and hydrogen are flammable gases and are potentially hazardous products. Our operations, including our R&D and manufacturing processes, are subject to all of the risks and hazards inherent to natural gas and hydrogen and products that use these gases, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of natural gas, fires, explosions and other damages. Although we believe that our procedures for using, handling, storing and disposing of natural gas, hydrogen and other hazardous materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from natural gas, hydrogen and other hazardous materials and we may incur liability as a result of such contamination or injury. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our insurance and other resources, in which event Xebec could incur significant costs that could have a material adverse effect upon its financial condition.

Insurance risk

Xebec’s operations are subject to risks inherent in the compressed air and gas purification sectors. Xebec subscribes for insurance in amounts which it considers appropriate in the circumstances and having regard to industry norms. Xebec may become liable in relation to risks in respect of which it cannot obtain insurance or for which it chooses not to obtain insurance as a result of high premiums or for other reasons, or for damages which exceed the maximum coverage provided for in the insurance policies. Such liability claims could adversely affect Xebec’s business, financial condition and results of operations.

Credit facilities

Xebec’s credit facilities and financing agreements mature on various dates. There can be no assurance that such credit facilities or financing agreements will be renewed or refinanced, or if renewed or refinanced, that the renewal or refinancing will occur on equally favourable terms to Xebec. Xebec’s ability to continue operating may be adversely affected if Xebec is not able to renew its credit facilities or arrange refinancing, or if such renewal or refinancing, as the case may be, occurs on terms materially less favorable to Xebec than at present. Xebec’s current credit facilities and financing agreements impose covenants and obligations on Xebec. There is a risk that such loans may go into default if there is a breach in complying with such covenants and obligations, which could result in the lenders realizing on their security and causing the shareholders to lose some or all of their investment.

Product liability

Difficulties in product design, performance and reliability could result in lost sales, delays in customer acceptance of Xebec’s products and lawsuits which would be detrimental to market reputation. Xebec’s products are not error-free. Undetected errors or performance problems may be discovered in the future. Xebec may not be able to successfully complete the development of planned or future products in a timely manner or to adequately address product defects, which could harm the business and prospects. In addition, product defects may expose Xebec to product liability claims, for which it may not have sufficient product liability insurance. Difficulties in product design, performance, and reliability or product liability claims could adversely affect Xebec’s business, financial condition and results of operations.

Our limited production trials, commercial launch activities and field tests could encounter problems

We conduct limited production trials and field tests on a number of our products as part of our product development cycle, and we are working on scaling up our production capabilities. These trials, production readiness activities and field tests may encounter problems and delays for a number of reasons, including the failure of our technology, the failure of the technology of others, the failure to combine these technologies properly, and the failure to maintain and service the test prototypes properly. Some of these potential problems and delays are beyond our control. Any problem or perceived problem with our limited production trials and field tests could hurt our reputation and the reputation of our products and delay their commercial launch.

Risk Factors - External

Xebec’s markets are exposed to recessionary risk

A global recession may result in lost or delayed sales orders, as many of Xebec’s existing and targeted customers may cut back their proposed capital spending in the face of economic uncertainty and limited access to project financing. This would impact the ability of Xebec to grow its business and, as a result, sales orders may be lower than expected. Any decrease in sales would negatively impact Xebec’s cash flows and other financial results. Different air and gas purification markets and different geographies may be impacted to different extents, making it difficult to forecast the likely impact.

Sustained negative economic factors and COVID-19 could negatively impact our business

Global economic factors beyond our control such as sustained and far reaching negative economic factors, more restrictive access to credit markets, current state of the energy markets and low fuel price differential, including the effects of the decision of Saudi Arabia to reduce the price of its oil and to increase its production, pandemics or other outbreaks of illness, disease or virus, such as the strain of coronavirus known as COVID-19, or other broad economic issues may negatively affect the capital markets or market for our products, and reduce demand for our products as partners and potential customers defer their projects. Natural gas and oil prices are expected to remain volatile for the near future because of market uncertainties over the supply and the demand of this commodity due to the current state of the world economies, energy infrastructure and other factors, including the effects of COVID-19.

The continued spread of COVID-19 around the globe and the responses of governmental authorities and corporate entities, including through mandated or voluntary shutdowns, may lead to a general slow-down in the economy and have led to disruptions to our work force and facilities, our customers, our sales and operations and our supply chain. Our bad debt expense may increase, our revenues and cash resources may be negatively affected, and we may need to assist potential customers with obtaining financing or government incentives to help customers fund their purchases of our products. Any temporary suspension of production in Xebec facilities as a direct result of COVID-19 or any required suspensions of any of Xebec’s suppliers, partners or customers may have a material adverse effect on Xebec.

Volatility of oil and natural gas prices

Xebec’s systems represent a significant potential capital cost to Xebec’s existing and target customers, and their ability to purchase Xebec’s products is dependent upon factors which affect energy industries. Xebec’s existing and target customers’ results of operations and financial condition are dependent on the prices they receive for oil, natural gas, and RNG. Oil and natural gas prices have fluctuated widely during recent years and are determined by local and worldwide supply and demand factors, including actions by

the Organization of Petroleum Exporting Countries, weather conditions, the U.S. dollar exchange rate, transportation, competition, and general economic conditions as well as conditions in other oil producing regions, which are beyond Xebec’s control. Any material decline in oil or natural gas prices could have a material adverse effect on Xebec’s existing and target customers’ ability to purchase Xebec’s products, operations, financial condition, and the amount they spend on new capital equipment and the development of new technology. In addition, Xebec’s prospects would be adversely affected should the cost of natural gas fall to levels where the production of natural gas becomes uneconomic.

Foreign operations (risks with conducting business in international markets)

The majority of Xebec’s revenues derive from international sales. There are a number of risks inherent to Xebec’s international business activities, including government policies concerning the import and export of goods, services and other regulatory requirements, tariffs and other trade barriers, costs and risks of localizing products and subcontractors in foreign countries, costs and risks associated with the use of foreign agents, higher credit risks, potentially adverse tax consequences, limits on repatriation of earnings, the burdens of complying with a wide variety of foreign laws, slower payment of invoices, nationalization and possible social, labour, political and economic instability. Government-owned petroleum companies located in some of the countries in which Xebec operates have adopted policies, or are subject to governmental policies, giving preference to the purchase of goods and services from companies that are majority-owned by local nationals.

As a result of these policies, Xebec may rely on contractual arrangements with local nationals in these countries. In addition, political considerations may disrupt the commercial relationships between Xebec and government- owned petroleum companies. The lack of well-developed legal systems in certain jurisdictions in which Xebec operates creates additional risks in conducting business. Although an evaluation is made of the creditworthiness of all new customers and Xebec maintains an ongoing review of their financial condition and subscribes to accounts receivable insurance, credit risks associated with international sales remain higher than for domestic customers. These practices may create potential problems and liabilities for which Xebec may have to incur additional costs. There can be no assurance that such risks will not adversely affect Xebec’s business, financial condition and results of operations. The risks inherent in establishing new business ventures in international markets where Xebec has not previously conducted business, especially in a market where local customs, laws and business procedures present special challenges, may affect Xebec’s ability to be successful in these ventures or avoid losses that could have a material adverse effect on Xebec’s business, financial condition and results of operations.

In addition, Xebec may expand its business into international markets where it has not previously conducted business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect Xebec’s ability to be successful in these ventures or avoid losses that could have a material adverse effect on Xebec’s business, financial condition, and results of operations.

Regions which may subject it to higher risks associated with complying with laws in respect of economic sanctions

The U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers a series of laws that impose economic sanctions against hostile targets to further U.S. foreign policy and national security objectives. These laws restrict U.S. persons and, in some instances, non-U.S. persons from conducting activities, transacting business with or making investments in certain countries, governments,

entities, and individuals subject to U.S. economic sanctions. The Middle East is a key area of risk where persons and entities operating seemingly reputable businesses may be on a sanctions list. Accordingly, the activities of Xebec and its affiliates may subject them to elevated levels of scrutiny under applicable sanctions laws. If such activities or transactions, whether or not material, are found to violate applicable sanctions or other trade controls, Xebec may be subject to potential fines or other sanctions and reputational risk, any of which could have a material adverse effect.

Compliance with anti-corruption and anti-bribery laws

Xebec is subject to various laws and regulations relating to bribery and corruption in the jurisdictions in which it operates. Although Xebec has procedures and controls in place to monitor internal and external compliance, if Xebec is found to be liable for anti-corruption or anti-bribery law violations (either due to its own acts or inadvertence, or due to the acts or inadvertence of others, including actions taken by Xebec’s agents), Xebec could suffer from severe civil and criminal penalties or other sanctions, which could adversely affect its business, financial condition and results of operations.

In addition, Xebec operates in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-corruption or anti-bribery laws may conflict with local customs and practices. Xebec’s compliance program and its internal monitoring may not always protect Xebec from reckless or negligent acts committed by its employees or agents. Violations of these laws, or allegations of such violations, could disrupt Xebec’s business and result in a material adverse effect on its business and operations. Xebec may be subject to competitive disadvantages to the extent that its competitors are able to secure business, licenses or other preferential treatment by making payments to government officials and others in positions of influence or using other methods that are prohibited by international laws and regulations to which Xebec is subject. Furthermore, customers may cease doing business with Xebec if Xebec decides to stop using certain agents’ services.

We are at risk of cyber based attacks

Xebec information technology systems serve an important role in the operation of its business. We rely on various technologies to operate our production facilities, interact with customers, vendors and employees and to report on business. Interruption, failure or unsuccessful implementation and integration of Xebec information technology systems could result in material and adverse impacts on the Corporation’s financial condition, operations, sales, and reputation and could also result in damage to Corporation operations. Xebec information technology systems and networks could be interrupted or fail due to a variety of causes, such as natural disaster, fire, power outages, vandalism, or cyber-based attacks. Any such interruption or failure could result in operational disruptions or the misappropriation of sensitive or proprietary data that could subject Xebec to civil and criminal penalties, litigation or have a negative impact on the Corporation’s reputation. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not negatively impact the Corporation’s cash flows and have a material adverse effect on its business, operations, financial condition and operational results. Although to date Xebec has not experienced any material losses relating to cyber risks, there can be no assurance that we will not incur such losses in the future. Xebec risk and exposure cannot be fully mitigated due to the nature of these threats. Xebec Information Technology leadership continues to develop and enhance internal controls, policies and procedures designed to protect systems, servers, computers, software, data and networks from attack, damage or unauthorized use. As cyber threats continue to evolve, the Corporation may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

Environmental risks

All phases of the oil and natural gas business, and of the processing of organic wastes, are subject to environmental regulation pursuant to a variety of Canadian federal, provincial, state and municipal laws and regulations, as well as international conventions (collectively, “Environmental Legislation”). Environmental Legislation imposes, among other things, restrictions, liabilities, and obligations in connection with the generation, handling, storage, transportation, treatment, and disposal of hazardous substances and waste, and in connection with spills, releases, and emissions of various substances to the environment. Environmental Legislation also requires that wells, facility sites, and other properties associated with oil and natural gas operations be operated, maintained, abandoned, and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and significant changes to certain existing projects, may require the submission and approval of environmental impact assessments. Compliance with Environmental Legislation can require significant expenditures and failure to comply with Environmental Legislation may result in the imposition of fines, penalties, and liability for cleanup costs and damages. Changes in Environmental Legislation due to, namely, climate change concerns, may require, among other things, reductions in emissions to the air from Xebec’s existing and target customers’ operations and result in increased capital expenditures. Future changes in Environmental Legislation could occur and result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, which could have a material adverse effect on Xebec’s existing and target customers’ ability to purchase Xebec’s products.

COVID-19 may further disrupt the business of the Corporation

Since December 2019, governments worldwide have been enacting emergency measures to combat the spread of disease caused by the novel coronavirus known as COVID-19. In response to the outbreak, governmental authorities in Canada and internationally have introduced various recommendations and measures to try to limit the COVID-19 pandemic, which include the implementation of travel bans, selfimposed quarantine periods and physical distancing, all of which have caused material disruption to business globally and resulted in an economic slowdown. Although management believes that, at this time, these disruptions will not have a long-term adverse impact on the Corporation’s results from operations, Xebec cannot estimate the duration and severity of this outbreak and its financial impact. However, the Corporation is able to function with reduced staffing and work remotely. The ultimate extent of the impact of the COVID-19 pandemic on the Corporation’s business, financial condition, results of operations, cash flows and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the COVID-19 pandemic and actions taken to contain or prevent its further spread, among others. Any of the foregoing events could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, the continued impact of COVID-19 may have adverse impacts on the Corporation, including, among others:

continued disruptions and volatility in the global capital markets, which may increase cost of capital and adversely impact access to capital;
continued impacts on workforces throughout the regions in which COVID-19 is present, which may result in our workforce being unable to work effectively;
supply chain disruptions; and
impacts that are currently unpredictable.

We continue to work with our stakeholders to responsibly address the global pandemic. We continue to monitor the situation, to assess further possible implications to our business, customers and clients and to take actions in an effort to mitigate adverse consequences.

Risk Related to our Common Shares

The market price of our Common Shares may be volatile and your investment could suffer or decline in value.

The market price of our Common Shares could be subject to significant fluctuations, and it may decline. Some of the factors that may cause the market price of our Common Shares to fluctuate include: volatility in the market price and trading volume of comparable companies; actual or anticipated changes or fluctuations in our operating results or in the expectations of market analysts; adverse market reaction to any indebtedness we may incur or securities we may issue in the future; short sales, hedging and other derivative transactions in our Common Shares; technical factors in the public trading market for our Common Shares that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our Common Shares, access to margin debt, trading in options and other derivatives on our Common Shares and other technical trading factors; litigation or regulatory action against us; investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with Canadian securities regulators, including our financial statements; publication of research reports or news stories about us, our competitors or our industry; positive or negative recommendations or withdrawal of research coverage by securities analysts; changes in general political, economic, industry and market conditions and trends; sales of our Common Shares by existing shareholders; recruitment or departure of key personnel; significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; and the other risk factors described in this section of the AIF.

Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. As well, certain institutional investors may base their investment decisions on consideration of our environmental, governance and social practices and performance against such institutions’ respective investment guidelines and criteria, and failure to satisfy such criteria may result in limited or no investment in our Common Shares by those institutions, which could materially adversely affect the trading price of our Common Shares. There can be no assurance that fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue for a protracted period of time, our operations and the trading price of our Common Shares may be materially adversely affected.

In addition, broad market and industry factors may harm the market price of our Common Shares. Therefore, the price of our Common Shares could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce the price of our Common Shares regardless of our operating performance. In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted against that company. If we were involved in any similar litigation, we could incur substantial costs, our management’s attention and resources could be diverted and it could harm our business, financial condition, results of operations, cash flows and prospects.

Litigation, including litigation due to Common Share price volatility or other factors, could cause us to incur substantial costs and divert our Management’s time and attention.

From time to time, we may become involved in, or become liable for legal, contractual and other claims by various parties, including customers, suppliers, former employees, class action plaintiffs and others, including litigation related to the volatility of our Common Shares and investigations or reviews by regulatory bodies. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. On an ongoing basis, we attempt to assess the likelihood of any adverse judgments or outcomes to these proceedings or claims, although it is difficult to predict final outcomes with any degree of certainty. Except as disclosed from time to time in our financial statements, we do not believe that any of the proceedings or claims to which we are party will have a material adverse effect on our financial position; however, we cannot provide any assurance to this effect.

We do not currently pay and do not anticipate paying any cash dividends on our Common Shares in the foreseeable future; therefore, our shareholders may not be able to receive a return on their Common Shares until they sell them.

We have never paid or declared any cash dividends on our Common Shares. We do not anticipate paying any cash dividends on our Common Shares in the foreseeable future because, among other reasons, our current credit facilities restrict our ability to pay dividends, and we currently intend to retain any future earnings to finance our business. The future payment of dividends will be dependent on factors such as cash on hand and achieving profitability, the financial requirements to fund growth, our general financial condition and other factors our Board may consider appropriate in the circumstances. Until we pay dividends, which we may never do, our shareholders will not be able to receive a return on their Common Shares unless they sell them.

Risks Related to the Post-Acquisition Business and Operations of Xebec and HyGear

A mass hydrogen economy market, which is one of the addressable markets of HyGear, may fail to grow at anticipated rates or may not develop at all.

A mass market may never develop for hydrogen fuel cells or other hydrogen-powered energy generators, or such markets may develop more slowly than anticipated. Engines which require hydrogen (i.e., the hydrogen fuel cell engine, the hydrogen-powered ICE and the hydrogen-hybrid electric system) represent an emerging market, and HyGear does not know whether end users will use such products in masses. The development of a mass market for hydrogen infrastructure products and/or hydrogen fuel may be affected by many factors, some of which are not under our control, including the following:

The emergence of new, more competitive technologies and products in the hydrogen infrastructure industry, such as more advanced electrolysis or other technologies;
The use of alternative low emission technologies, such as vehicles powered by batteries;
The future cost of hydrogen fuel cells and other powertrains that use HyGear’s hydrogen infrastructure;
If a hydrogen fuel distribution infrastructure is built, the fuel delivered through it, both due to the cost of the delivery system and the cost of the fuel itself, may have a higher price than drivers are willing to pay;
If drivers are unable to obtain hydrogen fuel conveniently and affordably, a mass market for vehicles powered by hydrogen is unlikely to develop;

The future cost of hydrogen applications;
Consumer perceptions of the safety of hydrogen.

Competitive products may reduce demand of HyGear’s product

The market for industrial gases and hydrogen for transport applications is extensive and has a number of other large players – both national and international – who can be seen as direct competitors of HyGear. There is a risk that these competitors will be more successful at developing new technology that may outpace HyGear’s current and future offerings.

HyGear’s success depends largely on the ability to keep products current and compatible with evolving technologies and codes and standards. Unexpected changes in technology or in codes and standards could disrupt the development of HyGear’s products and prevent from meeting deadlines for the delivery of products. If HyGear is unable to keep pace with technological advancements and adapt products to new codes and standards in a timely manner, HyGear’s products may become uncompetitive or obsolete and revenues would suffer.

HyGear is exposed to risks related to conducting operations in several different countries

HyGear is active worldwide with an emphasis on Europe and South-East Asia. The political and economic stability in the different countries where activities take place can vary greatly. The manifestation of various circumstances may affect, among others, HyGear’s clients operating there, which in turn may adversely affect the demand for HyGear’s products.

An uncertain factor is the influence of politics. Political risks include risks related to the stability and legitimacy of political institutions, orderly succession of political leaders, transparency in economic decision-making, national security, international sanctions and geopolitical risks. Because HyGear is active in different parts of the world, this can have negative consequences for ongoing projects. It can also make it more difficult to start new projects (in certain regions).

Loss of key personnel could result in lower knowledge base and reduce HyGear’s competitive advantage

HyGear’s continuity depends on the specific knowledge and experience of the members of the management team. The loss of a director or a member of the management team can mean that specific knowledge and experience is lost. Furthermore, HyGear’s distinctive character is mainly based on its technological advantage over competitors. This knowledge is spread over the organization and often also available to more people. The disappearance of a specific knowledge carrier at any time can have negative effects on business operations.

Suppliers and/or clients of HyGear could fail to honor contractual obligations as a result, for example, of bankruptcy

It is possible that companies and their affiliates that supply parts to HyGear do not deliver while HyGear has paid advances. Such payments occur when ordering large parts such as process reactors or gas storage installations. This could cause delay in production of installations ordered by clients, and therefore, could result in breach of customer contracts and potential penalties. To limit this risk, HyGear works with suppliers with a track record in the market.

Furthermore, HyGear’s GaaS clients who sign long-term contracts could become insolvent, which would lead in failure to honor contractual obligations towards HyGear.

Relying on a limited number of clients to generate a significant portion of future revenues

Inherent to the nature of the projects for local production of industrial gases is that the number of customers is limited and the turnover per project and per customer is relatively large. Particularly in the case where HyGear itself invests in the installation and is paid for the supply of gas, the effect of the loss of a customer can have negative effects on business operations and its financial position. This will mainly be the case when the installation cannot be deployed at another client within the foreseeable future.

HyGear could be exposed to legal claims from customers as a result of product malfunction or accident, which could harm HyGear’s reputation with a long-term effect

The hydrogen production plants of HyGear are designed for a service life of approximately fifteen years. It has not yet been demonstrated that the installations can actually serve their full life at the expected maintenance costs.

Furthermore, in an unfortunate event of system failure, accident, or supply of faulty product to a customer, HyGear will likely suffer reputational risk with potential long-term effects. This risk is even greater because HyGear’s client base has large presence in their respective markets.

Loss of key suppliers for critical parts could impede HyGear’s potential to honor contractual obligations

HyGear is dependent on suppliers for components and sub-modules. In most cases key components are available from multiple sources, but in some cases the number of suppliers is limited, for example for catalysts and adsorbents. The (temporary) disappearance of such suppliers may occur and lead to production and maintenance problems for the organization. These production and maintenance problems can have an impact on the operations and, ultimately, the financial results of the operations.

Furthermore, HyGear often takes responsibility for supply security of hydrogen in the GaaS contracts, and arranges back-up supply from local gas distributors in case of failure or peak demand. If local distributors decide not to enter or cancel contracts with HyGear for the storage of gases at certain locations, HyGear may not be able to accept the projects or it may reduce the profitability of the projects, because gases could be supplied at a greater distance, and therefore at higher cost to HyGear.

Risk of changes in governmental policies could affect HyGear’s ability to obtain subsidy grants for Research & Development

HyGear is characterized by a great effort in the field of technological innovation. Up to now, HyGear has been very successful in acquiring development and subsidy grants from the European and Dutch governments.

The sudden fall-out (for example, by recovery from the grant provider) or by no longer being able to successfully acquire such subsidies from the Dutch or European governments can have a negative effect on cash flows and will probably have a negative impact on the operating result because the research costs (especially personnel costs) cannot be reduced in the short-term as fast. In addition, the elimination of subsidies can have a negative effect on the further innovation within HyGear and maintain a competitive edge.

Risk of dealing with multiple currencies as HyGear expands its sales efforts across geographies

So far, almost all contracts have been concluded in Euro. With further internationalization, contracts may be concluded in other currencies, which entails a currency risk. Especially for long-term gas supply contracts, HyGear will always have to weigh the currency risk against the costs of hedging these risks. In both cases, this can have consequences for the long-term results of such projects and therefore for the financial position of HyGear. If these currency risks are not hedged and manifest themselves or if the hedging of currency risks can only take place at very high costs, it can have a negative impact on both the business operations and the financial position of HyGear.

Risk of interruption in the operations of HyGear’s manufacturing facilities

Operational risks include, among other things, fire and explosions, severe weather and natural disasters (such as flood and hurricanes), lack of water supply, equipment failure (including any failure of its information technology, air conditioning, cooling and compressor systems), failure to comply with applicable regulations and standards, raw material supply disruptions and labor force shortages or work stoppages.

Any disruption of HyGear’s manufacturing processes could result in delivery delays, scheduling problems, increased costs, interruption of the production or even lead to a full cessation of production, which in turn may result in customers deciding to purchase products from other suppliers.

A lack of internal manufacturing capacity could also result in monetary penalties from customers and/or in loss of key contracts or new business opportunities. The resulting loss of revenue and impact on HyGear’s margin, goodwill and customer relationships could be significant.

If HyGear fails to hire and retain needed personnel, the implementation of the business plan could slow down

Competition for highly-skilled technical, sales, marketing and support personnel is intense because there are a limited number of people available with the necessary technical skills, knowledge of the hydrogen generation industry and understanding of HyGear’s markets. Any failure to attract, assimilate, train or retain qualified personnel to fulfill HyGear’s current or future needs could slow implementation of the business plan or slow future growth.

Failure to adequately protect HyGear’s intellectual property could negatively affect HyGear’s ability to grow and compete with other players on the market

HyGear’s ability to compete effectively is largely dependent on the maintenance and protection of its intellectual property. Despite precautions, it may be possible for a third party to copy or otherwise obtain and use HyGear’s proprietary technology without authorization. Policing unauthorized use of intellectual property is difficult. The steps HyGear takes may not prevent misappropriation of its intellectual property, and the agreements HyGear enters into may not be enforceable. Litigation may be necessary in the future to enforce or protect HyGear’s intellectual property rights. Also, HyGear may become subject to intellectual property litigation that could, among other things, be time-consuming and costly, impede or prevent delivery of products and services, and require payment of significant royalties and damages.

Changing local (weather) conditions could negatively affect the performance of the systems and require further cost

It is now known that the operation of the on-site production systems can depend on local conditions, including natural gas quality, air pressure, temperature, air pollution and water quality. In the future, it could happen that installations (even those that work well initially) will not be able to meet their specifications and expectations under specific local (weather) conditions, or that the performance of the installations will deteriorate more quickly as a result of these local (weather) conditions. The consequences of poorer performance can lead to higher warranty and maintenance costs. In certain cases, HyGear could be held liable by its customers and depending on the outcome of one or more lawsuits, could be obliged to pay compensation for any damages in this regard.

HyGear’s insurance may not be sufficient to cover potential hazards

HyGear carries insurance that it considers adequate with regard to the nature of the risks and costs of coverage. HyGear may not, however, be able to obtain insurance against certain risks or for certain products or other resources located from time to time in certain areas of the world. HyGear is not fully insured against all possible risks, nor are all such risks insurable. Although HyGear maintains insurance for a certain coverage, such coverage may not be adequate.

Risk of changes in tax legislation could adversely affect HyGear’s profitability

HyGear applies for the innovation box on the basis of Article 12b of the Corporate Income Tax Act 1969 of the Netherlands. On this basis, the revenues from innovative activities are ultimately taxed at an effective rate of 5% corporate tax. The statutory corporate tax rate in the Netherlands is 25%. The legislation on the innovation box could change, which could negatively affect the after-tax operating results of HyGear.

Raw material cost increases or shortages could adversely affect HyGear’s success

As a manufacturer, HyGear’s sales and profitability are dependent on the availability and cost of raw materials, which are subject to price fluctuations and volatility. The principal raw materials used by HyGear to manufacture its products are stainless steel, precious metals, activated carbon and natural gas. HyGear also procures vessels, containers and other large pieces of equipment that are integrated in the systems.

The price of stainless steel and the other raw materials used is a function of supply and demand, suppliers’ capacity utilization, industry and consumer sentiment and prices for crude oil, natural gas and other raw materials. Additionally, as a result of operating manufacturing facilities, the fuels necessary to power HyGear’s facilities and operations, such as electricity and natural gas constitute a significant portion of its cost of sales. Inflationary and other increases in the costs of raw materials and energy prices have occurred in the past and are expected to recur, and HyGear’s performance depends in part on its ability to reflect changes in costs in selling prices for its products.

DESCRIPTION OF SHARE CAPITAL

The share capital of the Corporation consists of an unlimited number of Common Shares, without par value, and an unlimited number of preferred shares (“ Preferred Shares ”), without par value. As at

December 31, 2020, there were 152,342,986[1] Common Shares and nil Preferred Shares issued and outstanding.

Common Shares

Holders of Common Shares shall be entitled to receive notice of and attend all meetings of the shareholders of the Corporation (the “ Shareholders ”) and each holder of Common Shares shall have one vote for each Common Share held on all matters to be voted on by the Shareholders (except matters requiring the vote of another specified class or series voting separately as a class or series). Subject to the prior rights of holders of Preferred Shares, holders of Common Shares will be entitled to receive dividends, if any, as and when declared by the board of directors of the Corporation (the “ Board ”), in such amount and in such form as the Board may from time to time determine. On liquidation, dissolution or windingup of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation among the Shareholders for the purpose of winding-up its affairs, after payment of all outstanding debts and subject to the prior rights of holders of Preferred Shares, the holders of Common Shares will be entitled to receive the remaining property and assets of the Corporation. The holders of the Common Shares have no preemptive, redemption or conversion rights. All Common Shares, when issued, are and will be issued as fully paid and non-assessable without liability for further calls or to assessment by the Corporation.

Preferred Shares

Preferred Shares are issuable at any time and from time to time in one or more series. The Board has the right to fix the number of and to determine the designation, rights, privileges, restrictions, and conditions attaching to the Preferred Shares of each series. The Preferred Shares of each series, with respect to the payment of dividends and the distribution of assets or return of capital in the event of a liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, rank on a parity with the Preferred Shares of every other series and are entitled to a preference and priority over the Common Shares. The holders of a series of Preferred Shares shall not, as such, be entitled to receive notice of or attend any meetings of the shareholders of the Corporation and shall not be entitled to vote at any such meetings, except (i) where holders of a specified class or series of shares are entitled to vote separately as a class or series as provided in the CBCA or (ii) as may be provided for in the rights, privileges, restrictions, and conditions attached to any series of Preferred Shares. The holders of any series of Preferred Shares are entitled to receive, in priority to the holders of Common Shares, as and when declared by the Board, dividends in the amounts specified or determinable in accordance with the rights, privileges, restrictions and conditions attaching to the series of which such Preferred Shares form part.

DIVIDENDS

Each holder of Common Shares and Preferred Shares is entitled to receive the dividends that the Board declares at its discretion. To date, the Corporation has not paid any dividends on any of its shares. The future payment of dividends will be dependent on the financial requirements to fund future growth and other factors which the Board may consider appropriate in the circumstances. As it is anticipated that all available cash will be needed to implement the Corporation’s business plan and growth, there are no intentions to pay dividends in the foreseeable future.

1 Such total includes the 24,784,800 subscription receipts issued as part of the December Offering and the 10,905,174 placement subscription receipts issued as part of the CDPQ Private Placement which were automatically exchanged for Common Shares in the share capital of the Corporation upon completion of the HyGear Acquisition, in accordance with their terms.

MARKET FOR SECURITIES

Trading Price And Volume

The Common Shares are listed for trading on the TSX under the symbol “XBC” since the TSX Graduation. Prior to the TSX Graduation, the Common Shares were listed on the TSX Venture Exchange under the trading symbol “XBC”.

The following table shows the monthly range of high and low prices per Common Share and the total monthly volumes of Common Shares traded on the TSX Venture Exchange under the symbol “XBC” on a monthly basis for each month of the most recently completed financial year, as quoted on the TSX Venture Exchange’s historical data access platform.

’s historical data access platform.
Month		Common Shares
	High ($) 9.24 5.99 5.62 4.79 5.00 4.69 4.36 4.04 3.80 3.80 4.67 3.28	Low ($) 5.92 4.86 4.28 3.90 4.11 3.96 3.55 3.01 2.53 1.74 2.89 2.16	Total Monthly Volumes 28,998,318 8,797,934 8,308,003 8,611,349 5,350,207 6,928,331 13,560,258 7,918,682 10,076,669 17,977,632 25,335,053 16,969,078
December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020

Prior Sales

Other than as set forth below, Xebec did not issue any securities in the financial year ended December 31, 2020 that were not listed on the TSX Venture Exchange prior to the TSX Graduation.

Date of Issuance	Type of Security	Exercise Price per Security or Price per Security Issued	Number of Securities Issued
January 16, 2020(1) January 22, 2020(1) May 5, 2020(2) June 26, 2020(3)	Warrants Warrants Warrants Compensation Options	$1.85 $1.85 $4.58 $3,60	149,040 99,360 3,000,000 418,265

Notes:

(1) Such warrants were issued by the Corporation as a result of the exercise of compensation options issued pursuant to the short form prospectus offering of units that closed in July 2019.
(2) Such warrants were issued by the Corporation to the Fonds de solidarité FTQ pursuant to a loan agreement entered into on May 5, 2020.
(3) Such Compensations Options were issued by the corporation pursuant to the short form prospectus offering of units that closed in June 26, 2020.

SECURITIES SUBJECT TO CONTRACTUAL RESTRICTIONS ON TRANSFER

Designation of Class	Number of securities that are subject to a contractual restriction on transfer	Number of Securities Issued
December 31, 2020(1) December 31, 2020(2) December 31, 2020(3)	Common Shares Common Shares Common Shares	4,571,985 3,967,702 1,708,031

Notes:

(1) Such Common Shares were issued by the Corporation to SDI Technology Ventures B.V. in connection with the HyGear Acquisition and are subject to a lock-up period until March 31, 2022.
(2) Such Common Shares were issued by the Corporation to Ontwikkelingsmaatschappij Oost Nederland N.V. in connection with the HyGear Acquisition and are subject to a lock-up period until March 31, 2022.
(3) Such Common Shares were issued by the Corporation to Stichting Administratiekantoor HyGear in connection with the HyGear Acquisition and are subject to a lock-up period until March 31, 2022.

DIRECTORS AND EXECUTIVE OFFICERS

The directors of the Corporation (the “ Directors ”) are elected by shareholders at the Annual General Meeting and hold office until their term expires at the following Annual General Meeting, subject to resignation, retirement or re-election.

Biographical Information Regarding Our Directors

The following sets forth the name, municipality, province or state and country of residence of each director as of the date of this AIF, his/her principal occupation, the period during which each has acted as a director, and the Common Shares in number and percentage each director held as at December 31, 2020.

KURT SORSCHAK CHAIRMAN, PRESIDENT, CEO	COMMON SHARES 7,508,455	SHARE % 4.93
Kurt Sorschak cofounded Xebec Adsorption Inc. in 2007 and developed it from a local compressed air and gas dryer manufacturer into an internationally active clean energy company. In 2007 he and two of his managers bought Xebec, a division of Parker-Hannifin, in a management buy-out and in 2009 Xebec executed a reverse take-over transaction of a publicly listed company in Vancouver, making Xebec a publicly listed company in mid 2009 and the company re-focused on renewable gas purification and generation. Starting in 2018 he started to establish a Cleantech Service Network in North America and in 2020 he acquired Hygear, a Dutch based hydrogen generation company with technologies in steam methane reforming (SMR) and electrolysers. In early 2021 he expanded Xebec’s gas generation business into oxygen and nitrogen by acquiring Inmatec, a German based gas generation company.
Citizenship: Austrian	Committee Memberships:
Resides: Pointe Claire, QC, Canada	None
Board Director Since: 2009	Principal Occupation over the last 5 years: President and CEO of Xebec

WILLIAM (BILL) BECKETT LEAD DIRECTOR	COMMON SHARES 205,337	SHARE % 0.13
William (Bill) Beckett is past-President and CEO of Dart Aerospace with extensive operations and executive management experience in he Industrial and Aerospace sectors. He started his career with Canadian General Electric and continued his professional development with other industry leaders including Pratt & Whitney Canada, gaining strong management and technical skills, including expertise in Lean Manufacturing. He is a Professional Engineer Mechanical and a member of the Order of Engineers of Quebec. Mr. Beckett is an independent director for the purposes of National Instrument 58-101:Disclosure of Corporate Governance Practices.
Citizenship: Canadian	Committee Memberships:
Resides: Pointe Claire, QC, Canada	Governance Committee (Chair) and member of the Human Resources Committee
Board Director Since: 2010	Principal Occupation over the last 5 years: President and CEO of Dart Aerospace

DR. PRABHU RAO, BOARD DIRECTOR	COMMON SHARES 1,084,500	SHARE % 0.71
Prabhu Rao is the former CEO of McPhy Energy North America and a current board member of Ivys Inc. A seasoned executive with over 24 years of experience in the alternative energy industry, he has technical expertise in the areas of alternative fuels, emission controls, environmental air quality, combustion, hydrogen generation, metal hydrides, hydrogen fueling infrastructure, biogas upgrading and fuel cells. Dr. Rao holds a master’s and a Ph.D. degree in Mechanical Engineering and a Master’s in Environmental Engineering from Drexel University in Philadelphia, PA.
Citizenship: American	Committee Memberships:
Resides: Newton, MA, USA	None.
Board Director Since: 2015	Principal Occupation over the last 5 years: Former COO of Xebec (from March 3, 2017 to February 12, 2021), prior to such time, CEO of McPhy Energy North America

JOSEPH H. PETROWSKI BOARD DIRECTOR	COMMON SHARES 0	SHARE % 0.00
Joseph Petrowski is the former CEO of Cumberland Farms Gulf Oil Group, a diversified petroleum and retail convenience store holding company with 16 billion in annual revenues in 2013. After leaving Cumberland Farms, Mr. Petrowski founded Mercantor Partners, a private equity group focused n downstream energy investments. Mr. Petrowski is a member of the board and non-executive Chairman of Gulf Oil, and advisor to the Chairman of Brookwood Financial in Beverly, Ma., a $3 billion private equity firm investing in downstream fueling, real estate, and convenience retail. Mr. Petrowski is an independent director for the purposes of National Instrument 58-101:Disclosure of Corporate Governance Practices.
Citizenship: American	Committee Memberships:
Resides: West Yarmouth, MA, USA	Audit Committee, Compensation Committee
Board Director Since: 2017	Principal Occupation over the last 5 years: Advisor to the Chairman of Brookwood Financial

GUY SAINT-JACQUES BOARD DIRECTOR	COMMON SHARES 50,904	SHARE % 0.03
Guy Saint-Jacques joined the Department of External Affairs in 1977, holding office in New York City, Mexico City, Kinshasa, and Hong Kong as ell as twice in Washington, D.C., the last time as Minister and Deputy Head of Mission. He has been Deputy High Commissioner at the High Commission of Canada in London, UK, and has been posted three times to Beijing (he speaks fluent Mandarin). He also served as Deputy Director of he Energy and Environment division Before his last posting in China, Guy as Chief Negotiator and Ambassador for Climate Change. His last Public Service posting was as Ambassador Extraordinary and Plenipotentiary for Canada to the People’s Republic of China through to October 2016. Mr. Saint-Jacques is an independent director for the purposes of National Instrument 58-101: Disclosure of Corporate Governance Practices.
Citizenship: Canadian	Committee Memberships:
Resides: St. Lambert, QC, Canada	Audit Committee, Governance Committee, Human Resources Committee (Chair)
Board Director Since: 2017	Principal Occupation over the last 5 years: adviser through his company GS+J Groupe-conseil Inc., Senior Fellow at the China Institute of the University of Alberta as well as at the_Institut_ d’études internationales de Montréal(IEIM).

PETER BOWIE BOARD DIRECTOR	COMMON SHARES 116,950	SHARE % 0.08
Mr. Bowie previously served as the Chief Executive of Deloitte China from 2003 to 2008, as well as senior partner and a member of the Board and the management committee of Deloitte China until his retirement from the firm in 2010. Before that Mr. Bowie was the Chairman of Deloitte Canada (1998‑2000), and a member of the firm’s management committee and a member of the board and governance committees of Deloitte International. He is a past member of the board of the Asian Corporate Governance Association and has served on a variety of boards in the private and non‑governmental organization sectors. Mr. Bowie has a B.Comm (St. Mary’s University), as well as an MBA (University of Ottawa) and has received an honorary doctorate (University of Ottawa). In addition, Mr. Bowie completed the Advanced Management Program (Harvard University) and is a Fellow of the Institute of Chartered Accountants of Ontario, as well as the Australian Institute of Corporate Directors. Mr. Bowie is an independent director for the purposes of National Instrument 58-101:Disclosure of Corporate Governance Practices.
Citizenship: Canadian	Committee Memberships:
Resides: Toronto, ON, Canada	Audit Committee (Chair)

Citizenship: Canadian	Committee Memberships:
Resides: Toronto, ON, Canada	Audit Committee (Chair)

Board Director Since : 2020 Principal Occupation over the last 5 years : Current board member and a member of the Audit Committee of Magna International Inc.

SARA ELFORD BOARD DIRECTOR	COMMON SHARES 0	SHARE % 0.00
Ms. Elford served on the board of several other formerly TSX listed companies including Carmanah Technologies (solar LED technology company taken private), TSO3 Inc. (medical device sterilization technology company acquired by Stryker Corporation), and Pure Technologies Ltd. (pipeline leak detection company acquired by Xylem Inc.). Ms. Elford worked in capital markets for over twenty years as both an investment banking and equity research analyst. As a result, she followed an extensive range of industries and companies in the small to mid cap range and alternative energy space. Ms. Elford is a CFA Charter holder and a graduate of Bishop’s University with a Finance Major and Economics Minor. She also completed the directors’ education program with the ICD in 2015. Ms. Elford is an independent director for the purposes of National Instrument 58-101:Disclosure of Corporate Governance Practices.
Citizenship: Canadian	Committee Memberships:
Resides: Shawinigan Lake, BC, Canada	Audit Committee
Board Director Since: 2020	Principal Occupation over the last 5 years: Current board member of BioSyent Inc. and BQE Water Inc., both are TSX-V listed companies. She also served as a director of Hydrogenics Corp., a PEM fuel cell and electrolysis company, recently acquired by Cummins Inc. Ms. Elford sat on the audit and governance committees at Hydrogenics and also served on the special committee for its acquisition.

Biographical Information Regarding Our Executive Officers

The following table lists our executive officers, their respective ages, places of residence, positions and years of experience with Xebec as of the date of this AIF. Additional biographical information for each individual is provided below.

STÉPHANE ARCHAMBAULT CHIEF FINANCIAL OFFICER	COMMON SHARES 17,250	SHARE % 0.01
Mr. Archambault brings over two decades worth of experience as a finance executive with success in leading finance teams at two publicly listed TSX companies (CAE and Prometic Life Sciences), a strong track record in M&A (involved in transactions totaling more than $400M) and can foster an entrepreneurial spirit within a growing global business.
Mr. Archambault is a CPA, CMA and a graduate of Concordia University from its Executive CMA Accounting program, where he also obtained a Bachelor of Commerce with a major in Finance.
Citizenship: Canadian
Resides: Blainville, QC, Canada
With Xebec Since: 2020	Principal Occupation over the last 5 years: CFO of Xebec (since November, 2020, from December 2016 to November 2020, CFO of Pelican International Inc. and prior to such time Corporate controller of Telecon Inc.

Mr. Archambault is a CPA, CMA and a graduate of Concordia University from its Executive CMA	Mr. Archambault is a CPA, CMA and a graduate of Concordia University from its Executive CMA
Accounting program, where he also obtained a Bachelor of Commerce with a major in Finance.
Citizenship: Canadian
Resides: Blainville, QC, Canada
With Xebec Since: 2020	Principal Occupation over the last 5 years: CFO of Xebec (since
	November, 2020, from December 2016 to November 2020,
	CFO of Pelican International Inc. and prior to such time
	Corporate controller of Telecon Inc.

NATHALIE THÉBERGE VICE PRESIDENT, LEGAL AFFAIRS & CORPORATE SECRETARY	COMMON SHARES 17,250	SHARE % 0.01
Ms. Théberge is a seasoned corporate lawyer with solid experience in the renewable energy industry. She was most recently at Innergex Renewable Energy, where she spent close to a decade overseeing matters related to securities, corporate law, governance, acquisitions, strategic joint ventures and business financing. Ms. Théberge brings over 25 years of legal experience with her time at Lacoste Langevin, Bombardier Capital, Cascades and Innergex.
Citizenship: Canadian
Resides: Anjou, QC, Canada
With Xebec Since: 2020	Principal Occupation over the last 5 years: Vice President, Legal Affairs and Corporate Secretary of Xebec (since November, 2020), from March 2020, to November 2020, unemployed and prior to such time Vice President Corporate Legal Affairs and Secretary of Innergex Renewable Energy Inc. from November 2010 to March 2020.

MARINUS VAN DRIEL PRESIDENT, XEBEC EUROPE AND PRESIDENT, GLOBAL HYDROGEN GROUP	COMMON SHARES 4,443,735	SHARE % 2.92
Marinus Van Driel has devoted the last 25 years to clean energy, most notably as the CEO of HyGear, a leader in on-site gas production and delivery. After filling various technical and commercial positions at several engineering and production companies, Mr. Van Driel served as general manager of Plug Power’s Europe division. He later started his own company, Hexion (currently HyGear). As President, Xebec Europe and President, Global Hydrogen Group, Mr. Van Driel is responsible for the global hydrogen strategy of the Corporation, for solidifying the Corporation’s presence in the growing European biogas market, overseeing general management, finance & administration as well as business development. Mr. Van Driel has a master’s degree in materials science and engineering, focusing on fuel cell research, and an MBA from RSM Erasmus University in Rotterdam.
Citizenship:Dutch
Resides: Amersfoot, Netherlands
With Xebec Since: 2020	Principal Occupation over the last 5 years:Since December 31, 2020, President, Xebec Europe and February 15, 2021, President, Global Hydrogen Group of the Corporation. Prior to such time he was and still is President and CEO of HyGear.

Ownership Interest

As at December 31, 2020, our directors and executive officers, as a group, beneficially own, or control or direct, directly or indirectly, an aggregate of 8.83% of our issued and outstanding common shares (including the sub-receipts that were in the process to be converted into shares as at December 31, 2020) on a non-diluted basis.

Penalties or Sanctions

To the knowledge of the Corporation, no Director or Executive Officer of the Corporation is, as at the date hereof, or has been, within the 10 years before the date hereof, a director, chief executive officer or chief financial officer of any company that:

(i) while that person was acting in such capacity was subject to a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, in effect for a period of more than 30 consecutive days; or
(ii) was subject to a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, in effect for a period of more than 30 consecutive days, that was issued after the Director or Executive Officer ceased to be a director, chief executive officer or chief financial officer in the relevant company but which resulted from an event that occurred while that person was acting in such capacity

Individual Bankruptcies

To the knowledge of the Corporation, no Director or Executive Officer of the Corporation, or a shareholder holding a sufficient number of securities of the Corporation to affect materially the control of the Corporation:

(i) is, as at the date hereof, or has been, within the 10 years before the date hereof, a director or executive officer of any company that, while that person was acting in such capacity, or within a year of that person ceasing to act in that capacity, become bankrupt, made a proposal under any legislation relating to the bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets.
(ii) has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to the bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the Director, Executive Officer or shareholder.

Corporate Cease Trade Orders and Bankruptcies

To the knowledge of the Corporation, no Director or Executive Officer of the Corporation, or a shareholder holding sufficient number of securities of the Corporation to affect materially the control of the Corporation, has been subject to:

(i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority;
(ii) or any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

Conflicts of Interest

Certain of our directors and officers also serve as directors or officers of other companies. In particular, Dr. Prabhu K. Rao is a current board member of Ivys Inc., which carries on activities that may overlap and be competing with some of Xebec’s activities. On February 12, 2021, Xebec announced the departure of Dr. Prabhu K. Rao as Chief Operating Officer of Xebec.

Any decision made by any of such directors and officers involving the Corporation must be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Corporation and its shareholders. In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in the CBCA, other applicable laws, and our Code of Ethics.

AUDIT COMMITTEE

Charter of the Audit Committee

The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to monitoring the Corporation’s accounting and financial reporting and practices and procedures; the adequacy of the Corporation’s internal accounting controls and procedures; the quality and integrity of financial statements and other financial information provided by the Corporation to shareholders, and others; and for liaising with the external auditors of the Corporation. The Audit Committee charter of the Corporation, which sets out the Audit Committee’s responsibilities and duties, is attached as Schedule “A” to this AIF.

Composition of the Audit Committee

As of the date of this AIF, our Audit Committee is composed of Peter Bowie (Chair), Sara Elford, Joseph H. Petrowski and Guy Saint-Jacques. Each member of the Audit Committee of the Corporation is financially literate; as such terms are defined in NI 52 ‑ 110.

Relevant Education and Experience

The education and experience of each Audit Committee member of the Corporation that is relevant to the performance of his or her responsibilities as an audit committee member is described under the heading “Directors and Officers”.

Pre-approval Policies and Procedures

The Corporation’s Audit Committee annually reviews and approves the terms and scope of the external auditors’ engagement. The Audit Committee oversees the procedures and the conditions pursuant to which permissible services proposed to be performed by Raymond Chabot Grant Thornton, the Corporation’s external auditors, are pre-approved.

All non-audit service engagements of Raymond Chabot Grant Thornton, regardless of the cost estimate, are required to be coordinated and approved by the Audit Committee to ensure that adherence to the policy is monitored.

The following table sets forth, by category, the fees paid to the Corporation’s auditors, in each of the fiscal years ended December 31, 2020, and 2019.

	2020	2019
Audit fees	$159,750	$123,000
Audit-related fees	$75,824	$50,087
Tax fees	$148,172	$37,064
All other fees	$239,095	$102,330
Total	$622,841	$312,481

The nature of each category of fees is described below.

Audit Fees : Audit fees were for professional services rendered by Raymond Chabot Grant Thornton LLP in 2020 and 2019 for the audit of the annual consolidated financial statements of the Corporation.

Audit–Related Fees : Audit-related fees were for assurance and related services reasonably related to the performance of the audit or review of the annual statements and are not reported under the heading “Audit Fees” above. These services consisted of consultations related to accounting matters and amounts incurred in respect of interim reviews of the Corporation’s quarterly financial statements.

Tax Fees : Tax fees were for tax compliance and tax advice. These services consisted of tax compliance related to the preparation of tax returns and tax advice related to various agreements the Corporation entered into.

All Other Fees : These fees are mainly related to the public offerings in 2019 and 2020 and acquisitions.

NON-AUDIT SERVICES

All non-audit service engagements of external auditors, regardless of the cost estimate, are required to be coordinated and approved by the Audit Committee to further ensure that adherence to this policy is monitored.

LEGAL PROCEEDINGS

On March 19, 2021, a legal proceeding in the Ontario Superior Court of Justice was issued by a retail investor residing in Zurich, Ontario initiating a proposed class action against the Corporation, its current directors and certain of the Corporation’s current and former officers, its auditor and the underwriters of the December Offering. The claim alleges that Xebec would have made misrepresentations in certain disclosure documents that were revealed in a press release dated March 12, 2021 entitled “Xebec Provides Updated 2020 Guidance” where the Corporation provided a revision downwards of 2020 guidance, in violation of, among other things, parts XXIII and XXIII.1 and sections 130 and 138.3(6) of the Ontario Securities Act, the corresponding provisions of the other Securities Legislation, and the common law. The Corporation believes it has conducted itself in accordance with all relevant securities laws and that the complaint against it is without merit.

On March 16, 2021, a legal proceeding in the Québec Superior Court (Class Actions Division) in the District of Montréal, was issued by a retail investor residing in Toronto, Ontario initiating a proposed class action against the Corporation, certain of its current directors and officers, and the underwriters of the December Offering. The claim alleges that Xebec would have made misrepresentations in its disclosure documents for Q3 2020 as well as the December prospectus with respect to revenue accounting practices and Xebec’s internal controls over financial reporting in violation of, among other things, sections 218, 221 and 225.8 of the Quebec Securities Act. The Corporation believes it has conducted itself in accordance with all relevant securities laws and that the complaint against it is without merit.

As at the date hereof, the amounts claimed for damages in each of these actions have not been quantified. These actions are in a preliminary stage and have not yet been certified as class actions.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

There are no material interests, direct or indirect, of any of our directors or executive officers, any common shareholder that beneficially owns, or controls or directs (directly or indirectly), more than 10% of any class or series of our outstanding voting securities, or any associate or affiliate of any of the foregoing persons, in any transaction within the three most recently completed financial years or during the current financial year that has materially affected or is reasonably expected to materially affect us or any of our subsidiaries.

AUDITORS, TRANSFER AGENT AND REGISTRAR

The Corporation’s auditors are Raymond Chabot Grant Thornton LLP (“ RCGT ”), located in Montréal, Québec. RCGT is independent of the Corporation within the meaning of the Code of Ethic of the Ordre des comptables professionnels agrées du Québec.

The transfer agent and registrar for our common shares is AST Trust Company (Canada) at its principal office in Montréal, Québec.

INTEREST OF EXPERTS

No person or company named in this document as having prepared or certified a part of the document or a report described in this document and no responsible solicitor or any partner of a responsible solicitor’s firm, holds any material beneficial interest, direct or indirect, in any securities or property of the Corporation or of an associate or affiliate of the Corporation.

MATERIAL CONTRACTS

This AIF includes a summary description of certain material contracts. Each summary description discloses all material attributes of the applicable contract but is not complete and is qualified by reference to the terms of the material contracts, which are available under the Corporation’s SEDAR profile at www.sedar.com. The following are the Corporation’s only material contracts, other than those contracts entered into in the ordinary course of business, which have been entered into since the beginning of its last financial year, or entered into prior to such date, but which are still in effect and which are required to be filed with Canadian securities regulatory authorities:

the Purchase Agreement referred to under relating to the HyGear Acquisition under the heading “Three Year History” – “2020 Highlights”;
the subscription receipt agreement referred to under “Three Year History” – “2020 Highlights”;
the underwriting agreement referred to under “Three Year History” – “2020 Highlights”; and
the underwriting agreement referred to under “Three Year History” – “2020 Highlights”;
the subscription agreement referred to under “Three Year History” - 2020 Highlights”.
the License Agreement described under the heading “Intellectual Property”; and
the warrant indenture relating to the 2019 Offering under the heading “Three Year History” – “2019 Highlights”.

ADDITIONAL INFORMATION

Additional information relating to the Corporation is available on its SEDAR profile at www.sedar.com. Additional information is contained in our final short form prospectus dated December 21, 2020 prepared in connection with the December Offering and will be contained in the Corporation’s management information circular for its next annual meeting of shareholders that involves the election of directors, all of which are or will be available under the Corporation’s SEDAR profile at www.sedar.com. Additional financial information is contained in the Corporation’s consolidated financial statements and management’s discussion and analysis for the year ended December 31, 2020, available under the Corporation’s SEDAR profile at www.sedar.com.

APPENDIX “A” AUDIT COMMITTEE CHARTER

(see attached)

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AUDIT COMMITTEE CHARTER

The following Audit Committee Charter was updated in March 2021 following an annual review of all Board committee charters.

I. PURPOSE

The Audit Committee (the “ Committee ”) is a standing committee of the Board of Directors. The primary function of the Committee is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to monitoring the Corporation’s accounting and financial reporting and practices and procedures; the adequacy of the Corporation’s internal accounting controls and procedures; the quality and integrity of financial statements and other financial information provided by the Corporation to shareholders, and others; and for liaising with the external auditors of the Corporation.

II. STRUCTURE AND OPERATIONS

The Committee shall be comprised of three or more members of the Board of Directors, all Committee members shall satisfy the “independence” requirement of Regulation 52-110 – Audit Committees (“ 52-110 ”) and who shall all satisfy the “financial literacy” requirement of 52-110.

For the purposes of this Charter, a member of the Committee is “independent” if the member has no direct or indirect material relationship with the Corporation, as more fully defined in 52-110, and a member of the Committee is “financially literate” if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that can reasonably be expected to be raised by the financial statements of the Corporation.

The members of the Committee shall be annually appointed by the Board of Directors and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal. The members of the Committee may be removed, with or without cause, by a majority of the Board of Directors.

The Chair shall be annually appointed by the Board of Directors. The Chair shall not be entitled to a casting vote, and instead will refer any matter which results in a tie vote to the full Board of Directors for consideration and resolution. The Chair will set the agendas for Committee meetings and chair all meetings of the Committee unless the Chair is not present at such meeting in which case the members present shall elect a chair for the conduct of the meeting.

III. MEETINGS

The Committee shall meet at least quarterly or more frequently as circumstances dictate. As part of its goal to foster open communication, the Committee shall periodically meet with management and the external auditors in separate sessions to discuss any matters that the Committee or each of these groups believes should be discussed privately. The Committee may meet privately with outside counsel of its choosing and the Chief Financial Officer, as necessary. In addition, the Committee shall meet with the external auditors and management quarterly to review the Corporation’s financial statements in a manner consistent with that outlined in Section IV of this Charter.

The Committee may invite to its meetings any directors, management of the Corporation and such other persons as it deems appropriate to carry out its responsibilities. The

Committee may exclude from its meetings any persons it deems appropriate in order to carry out its responsibilities.

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A majority of the Committee members, but not less than two, will constitute a quorum. A majority of members present at any meeting at which a quorum is present may act on behalf of the Committee. The Committee may meet by telephone or videoconference and may take action by unanimous written consent with respect to matters that may be acted upon without a formal meeting.

The Chair of the Committee shall designate a person, who need not be a member thereof, to act as Secretary, who shall record the proceedings of the meetings. The agenda of each meeting will be prepared by the Secretary, upon consultation with the Chair, and, whenever reasonably practicable, circulated to each member prior to each meeting. The Committee shall maintain minutes or other records of meetings and activities of the Committee.

IV. RESPONSIBILITIES, DUTIES, AUTHORITY

The following functions shall be the common recurring activities of the Committee in carrying out its responsibilities outlined in Section I of this Charter. These functions should serve as a guide with the understanding that the Committee may carry out additional functions and adopt additional policies and procedures as may be appropriate in light of changing business, legislative, regulatory, legal and other conditions. The Committee shall also carry out any other responsibilities and duties delegated to it by the Board of Directors from time to time related to the purposes of this Committee outlined in Section I of this Charter.

In discharging its oversight role, the Committee is empowered to investigate any matter of interest or concern that the Committee deems appropriate. In this regard, the Committee shall have the authority to retain outside counsel, accounting, or other advisors for this purpose, including authority to approve the fees payable to such advisors and other terms of retention.

The Committee shall be given full access to the Board of Directors, management, employees of the Corporation, directly and indirectly responsible for financial reporting, and independent accountants, as necessary, to carry out these responsibilities. While acting within the scope of this stated purpose, the Committee shall have all the authority of the Board of Directors.

Notwithstanding the foregoing, the Committee is not responsible for certifying the financial statements of the Corporation or guaranteeing the external auditors’ report. The fundamental responsibility for the financial statements and disclosures rests with management and the external auditors.

Document Reports/Reviews

Annual Financial Statements

The Committee shall review with management and the external auditors, both together and separately, prior to public dissemination:
(a) the annual audited consolidated financial statements;
(b) the external auditor’s review of the annual consolidated financial statements and their report;
(c) any significant changes that were required in the external audit plan;
(d) any significant issues raised with management during the course of the audit, including any restrictions on the scope of activities or access to information; and

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(e) those matters related to the conduct of the audit that are required to be discussed under generally accepted auditing standards applicable to the Corporation.

Following completion of the matters contemplated above, the Committee shall make a recommendation to the Board of Directors with respect to the approval of the annual financial statements with such changes contemplated and further recommended as the Committee considers necessary.

Interim Financial Statements

The Committee shall review with management and the external auditors, both together and separately, prior to public dissemination, the interim unaudited consolidated financial statements of the Corporation, including a discussion with the external auditors of those matters required to be discussed under generally accepted auditing standards applicable to the Corporation.

The Committee shall make a recommendation to the Board of Directors with respect to the approval of the interim financial statements with such changes contemplated and further recommended as the Committee considers necessary.

Management’s Discussion and Analysis

The Committee shall review with management and the external auditors, both together and separately, prior to public dissemination, the annual and interim Management’s Discussion and Analysis of Financial Condition and Results of Operations (“ MD&A ”).

The Committee shall make a recommendation to the Board of Directors with respect to the approval of the MD&A with such changes contemplated and further recommended as the Committee considers necessary.

Press Releases

The Committee shall review with management, prior to public dissemination, the annual and interim earnings press releases (paying particular attention to the use of any “pro forma” or “adjusted non-GAAP” information) as well as financial information and earnings guidance provided to analysts and rating agencies.

Reports and Regulatory Returns

The Committee shall review and discuss with management, and the external auditors to the extent the Committee deems appropriate, such reports and regulatory returns of the Corporation as may be specified by law.

Other Financial Information

The Committee shall review the financial information included in any prospectus, annual information form or information circular with management and the external auditors, together and separately, prior to public dissemination, and shall make a recommendation to the Board of Directors with respect to the approval of such prospectus, annual information form or information circular with such changes contemplated and further recommended as the Committee considers necessary.

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Financial Reporting Processes

Establishment and Assessment of Procedures

The Committee shall satisfy itself that adequate procedures are in place for the review of the public disclosure of financial information extracted or derived from the financial statements of the Corporation and assess the adequacy of these procedures annually.

Application of IFRS

The Committee shall assure itself that the external auditors are satisfied that the accounting estimates and judgements made by management, and management’s selection of accounting principles reflect an appropriate application of generally accepted accounting principles.

Practices and Policies

The Committee shall review with management and the external auditors, together and separately, the principal accounting practices and policies of the Corporation.

External Auditors

Oversight and Responsibility

The Committee is directly responsible for overseeing the work of the external auditors engaged for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Corporation, including the resolution of disagreements between management and the external auditors regarding financial reporting

Reporting

The external auditors shall report directly to the Committee and are ultimately accountable to the Committee.

Performance and Review

The Committee shall annually review the performance of the external auditors and recommend to the Board of Directors the appointment of the external auditors or approve any discharge of the external auditors when circumstances warrant, for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Corporation.

Annual Audit Plan

The Committee shall review with the external auditors and management, together and separately, the overall scope of the annual audit plan and the resources the external auditors will devote to the audit. The Committee shall annually review and approve the fees to be paid to the external auditors with respect to the annual audit.

Non-Audit Services

“Non-audit services” means all services performed by the external auditors other than audit services. All “nonaudit” services to be provided to the Corporation by the external auditors must either be approved explicitly in

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advance by the Committee, or pursuant to certain pre-approval policies and procedures established by the Committee that are detailed as to the particular services that may be pre-approved, do not permit the delegation of approval authority to the Corporation’s management, and require management to inform the Committee of each service approved and performed under the policies and procedures.

The Committee may delegate to one or more members of the Committee the authority to grant such preapprovals. The decisions of such member(s) regarding approval of “non audit” services shall be reported by such member(s) to the full Committee at its first scheduled meeting following such pre-approval. Notwithstanding the foregoing, pre-approval is not necessary for certain de minimis non-audit services performed by the external auditors, as specified in Section 2.4 of 52-110.

Independence Review

The Committee shall review and assess the qualifications, performance and independence of the external auditors, including the requirements relating to such independence of the law governing the Corporation. At least annually, the Committee shall receive from and review with the external auditors, their written statement delineating all relationships with the Corporation and, if necessary, recommend that the Board of Directors take appropriate action to satisfy itself of the external auditors’ independence and accountability to the Committee.

Reports to Board of Directors

Reports

In addition, to such specific reports contemplated elsewhere in this Charter, the Committee shall report regularly to the full Board of Directors regarding such matters, including:
(a) with respect to any issues that arise with respect to the quality or integrity of the financial statements of the Corporation, compliance with legal or regulatory requirements by the Corporation, the performance and independence of the external auditors of the Corporation;
(b) following meetings of the Committee; and
(c) with respect to such other matters as are relevant to the Committee’s discharge of its responsibilities.

Recommendations

In addition, to such specific recommendations contemplated elsewhere in this Charter, the Committee shall provide such recommendations as the Committee may deem appropriate. The report to the Board of Directors may take the form of an oral report by the Chair or any other member of the Committee designated by the Committee to make such report.

Whistle-Blowing

Procedures

The Committee shall establish procedures for:
(a) the receipt, retention and treatment of complaints received by the Corporation regarding questionable accounting, internal accounting controls, or auditing matters; and

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(b) the confidential, anonymous submission by employees of the Corporation and of concerns regarding questionable accounting or auditing matters.

Notice to Employees

To comply with the above, the Committee shall ensure the Corporation advises all employees of the Corporation, by way of a written code of business conduct and ethics (the “ Code ”), or if such Code has not yet been adopted by the Board of Directors, by way of a written or electronic notice, that any employee who reasonably believes that questionable accounting, internal accounting controls, or auditing matters have been employed by the Corporation or its external auditors is strongly encouraged to report such concerns by way of written communication directly to the Chair or any other member of the Audit Committee. Matters referred to a member of the Audit Committee, may be done so anonymously and in confidence.

The Corporation shall not take or allow any reprisal against any employee for, in good faith, reporting questionable accounting, internal accounting, or auditing matters. Any such reprisal shall itself be considered a very serious breach of this policy.

All reported violations shall be investigated by the Audit Committee following rules of procedure and process as shall be recommended by outside counsel.

General

Access to Counsel

The Committee shall review, periodically, with outside counsel of its choosing, any legal matter that could have a significant impact on the financial statements of the Corporation.

Hiring of Partners and Employees of External Auditors

The Committee shall annually review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditors of the Corporation.

General

The Committee shall perform such other duties and exercise such powers as may, from time to time, be assigned or vested in the Committee by the Board of Directors, and such other functions as may be required of an audit committee by law, regulations or applicable stock exchange rules.

V. ANNUAL PERFORMANCE REVIEW

Annual Review

The Committee shall perform a review and evaluation, annually, of the performance of the Committee and its members, including a review of the compliance of the Committee with this Charter. In addition, the Committee shall evaluate the adequacy of this Charter annually and recommend any proposed changes to the Board of Directors.

VI. DISCLOSURE OF CHARTER

This Charter will be made available on the Corporation’s website at www.xebecinc.com

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FormerXBC Inc. — Annual Report 2021

46443_rns_2021-03-31_57453407-374b-4011-a902-ffc27164baac.pdf

TABLE OF CONTENTS

GENERAL MATTERS

FORWARD-LOOKING STATEMENTS

MARKET AND INDUSTRY DATA

INTELLECTUAL PROPERTY

ORGANIZATIONAL STRUCTURE

General

Overview of the Corporation’s Business

CDA Systems LLC ( Service Company)

Air Flow (Service Company)

Applied Compression Systems (Service Company)

Inmatec

HyGear

GENERAL DEVELOPMENT OF THE BUSINESS

Recent Developments

Legal Proceedings

Updated Full Year 2020 Revenue Guidance

Inmatec Acquisition

Launch of Hydrogen Supply Strategy in the United Kingdom

Hydrogen Order Port of Long Beach Project

Organizational Changes

Graduation to TSX

THREE YEAR HISTORY

2020 Highlights

Purchase Price

Representations and Warranties

Covenants

Indemnification Provisions

Parent Guarantee

Indemnity Limitations and Exceptions

Governing Law

BUSINESS AND INDUSTRY

Mission & Overview

Our Products

New Products

Pressure Swing Adsorption (PSA)

Filtration

Steam Methane Reforming

Electrolyser

Oxygen and Nitrogen On-site Generation

Sales and Marketing

Research and Development

International Footprint and Certifications

Intangible Assets

Human Resources

Environmental Protection

Sustainability Approach

Industry Overview, Trends & Strategy

Global Greenhouse Gas Reduction Goals

Organic Waste Management

Renewable Natural Gas

RNG Market Size

Hydrogen and Renewable Hydrogen (RH2)

RH2 Market Size

Industrial Service and Support

Industrial Parts and Service Market Size

Revenues per Reportable Segments

1. Offer Low Carbon Transportation Fuels Through Significant Expansion of our Biogas Upgrading Plants

2. Enable Rapid Expansion of Natural Gas Vehicles (NGVs) and Hydrogen Refueling Infrastructure

3. Focus on Profitable Growth for a Sustainable Future

RISK FACTORS

Risk Factors - Internal

Liquidity

Warranty claims could diminish our margins

Xebec has foreign currency risk

Xebec is dependent upon third party suppliers for materials and components for its products

Insurance risk

Credit facilities

Product liability

Compliance with anti-corruption and anti-bribery laws

We are at risk of cyber based attacks

Environmental risks

COVID-19 may further disrupt the business of the Corporation

DESCRIPTION OF SHARE CAPITAL

Common Shares

Preferred Shares

DIVIDENDS

FormerXBC Inc. Annual Report 2021