Kiaro Holdings Corp. — Capital/Financing Update 2021

Nov 5, 2021

Form 51-102F3 Material Change Report

Item 1. Name and Address of Company

Kiaro Holdings Corp. (the "Company") 300 - 110 E Cordova Street Vancouver, British Columbia Canada V6A 1K9

Item 2. Date of Material Change

October 28, 2021

Item 3. News Release

News Release dated October 28, 2021, were disseminated through Canada Newswire.

Item 4. Summary of Material Change

On October 28, 2021, the Company completed a private placement of 3,759 convertible debenture units ("Units") of the Company at a price of $1,000 per Unit for gross proceeds of $3,759,000 (the "Offering").

Item 5. Full Description of Material Change

Item 5.1 Full Description of Material Change

A total of $3,759,000 worth of Units, or 3,759 Units. Each Unit consists of one 8.0% senior unsecured convertible debenture (each, a "Convertible Debenture") of the Company and 3,846 common share purchase warrants of the Company (each, a "Warrant"). Each Warrant entitles the holder thereof to purchase one Common Share at $0.16 per Common Share until October 28, 2024.

In connection with the Offering, the Company entered into a convertible debenture indenture (the "Debenture Indenture") and a warrant indenture (the "Warrant Indenture") with Odyssey Trust Company, acting as debenture trustee and warrant agent, each dated as of October 28, 2021. Each Convertible Debenture will be governed by the Debenture Indenture and each Warrant will be governed by the Warrant Indenture.

The Convertible Debentures will mature on October 28, 2024 (the "Maturity Date"). The Convertible Debentures bear interest at a rate of 8.0% per annum ("Interest") from the date of issue, payable semi-annually in arrears on the last day of June and December in each year, commencing December 31, 2021. Interest shall be computed on the basis of a 360-day year composed of twelve 30-day months. The December 31, 2021, Interest payment will represent accrued Interest for the period from the closing date of the Offering (the "Closing Date") to December 31, 2021.

The principal amount of each Convertible Debenture (the "Principal Amount") is convertible, for no additional consideration, into common shares of the Company ("Common Shares") at the option of the subscriber of the Units (the "Subscriber") at any time prior to the earlier of: (i) the close of business on the third business day immediately preceding the Maturity Date, and (ii) the business day immediately preceding the date specified by the Company for redemption of the Convertible Debentures upon a Change of Control (as further defined below) at a conversion price equal to $0.13 (the "Conversion Price").

If, at any time following 1 year from the Closing Date and prior to the Maturity Date, the 30 day volume weighted average price of the Common Shares on the TSX Venture Exchange, or other principal exchange on which the Common Shares are listed, is greater than $0.26, the Company

have the right but not the obligation, at the Company's option, to convert some or all of the then outstanding Convertible Debentures, less any applicable withholding taxes, into Common Shares at the Conversion Price (the "Accelerator Transaction Conversion Option"), provided that the Company notifies the Subscribers of the Convertible Debentures with not less than 30 days' notice prior to the date the conversion is effected. To the extent, the Company elects a partial conversion of pursuant to the Accelerator Transaction Conversion Option, such conversion will be applied pro rata to all then outstanding Convertible Debentures.

Upon a Change of Control (as hereinafter defined) of the Company, holders of the Convertible Debentures will have the right to require the Company to repurchase their Convertible Debentures, in whole or in part, on the date that is 30 days following the giving of notice of the Change of Control, at a price equal to 104% of the Principal Amount of the Convertible Debentures then outstanding plus accrued and unpaid Interest thereon (the "Offer Price"). If 90% or more of the Principal Amount of the Convertible Debentures outstanding on the date of the notice of the Change of Control have been tendered for redemption, the Company will have the right to redeem all of the remaining Convertible Debentures at the Offer Price.

For the purposes hereof, a "Change of Control" means (i) any event as a result of or following which any person, or group of persons "acting jointly or in concert" within the meaning of applicable Canadian securities laws, beneficially owns or exercises control or direction over an aggregate of more than 50% of the then outstanding Common Shares; or (ii) the sale or other transfer of all or substantially all of the consolidated assets of the Company. A Change of Control will not include a sale, merger, reorganization or other similar transaction if the previous holders of the Common Shares hold at least 50% of the voting shares of such merged, reorganized or other continuing entity.

Pursuant to the Debenture Indenture, the Convertible Debentures will rank pari passu with each other Convertible Debentures issued under the Debenture Indenture, regardless of their actual date or terms of issue. The Convertible Debentures will rank senior to any other existing and future subordinated unsecured indebtedness of the Company. Subject to the written approval of the holders of more than 50% of the Principal Amount of Debentures then outstanding, the Company shall not, and will not permit any subsidiary to, create, incur, assume or guarantee any indebtedness for borrowed money or otherwise, unless such indebtedness is: (i) subordinate to the Convertible Debentures, and (ii) such future indebtedness ranks pari passu with one another and equally in right of payment from the Company with all other unsubordinated unsecured indebtedness of the Company, other than the Convertible Debentures (which will be senior to such future indebtedness).

The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes. As part of the Offering, Research Capital Corporation and Canaccord Genuity Corp. received a cash commission in the aggregate amount of $161,540 and 1,863,848 nontransferable broker warrants (the "Broker Warrants"). Each Broker Warrant is exercisable into one Common Share until October 28, 2024, at a price of $0.13 per Common Share.

To the knowledge of the Company, one insider purchased an aggregate of 1,280 Units for $1,280,000 in the Offering. The participation of such insiders in the Private Placement constituted "related party transactions" within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The Company has relied on the exemptions from the formal valuation and minority shareholder approval requirements of MI 61-101 contained in sections 5.5(a) and 5.7(1)(a) of MI 61-101 in respect of the related party participation in the Private Placement as neither the fair market value (as determined under MI 61-101) of the subject matter of, nor the fair market value of the consideration for, the transaction, insofar as it involved the interested parties, exceeded 25% of the Company's market capitalization (as determined under MI 61-101).

The Units issued under the Offering are subject to a hold period that expires on March 1, 2022.

A full description of the material change is attached hereto as Schedule "A".

• Item 5.2 Disclosure for Restructuring Transactions Not applicable.
• Item 6. Reliance on subsection 7.1(2) of National Instrument 51-102 Not applicable.
• Item 7. Omitted Information Not applicable.
• Item 8. Executive Officer Daniel Petrov, Chief Executive Officer Telephone: 888 623-2420
• Item 9. Date of Report November 4, 2021

Schedule "A"

KIARO

Kiaro Announces Closing of $3.75 Million Brokered Private Placement

VANCOUVER, BC, Oct. 28, 2021 / CNW/ - Kiaro Holdings Corp. (TSXV: KO) ("Kiaro" or the "Company") a Canadian cannabis retailer and distributor, announces that further to its news release on September 30, 2021, that it has completed the previously announced private placement (the "Offering") of 3,759 convertible debenture units of the Company (the "Units") at a price of $1,000 per Unit, for gross proceeds of $3,759,000. Research Capital Corporation ("RCC") acted as the lead agent and sole bookrunner, on behalf of a syndicate, including Canaccord Genuity Corp. (collectively with RCC, the "Agents").

Each Unit consists of (i) one 8% senior unsecured convertible debenture (each, a "Convertible" Debenture") having a face value of $1,000, maturing October 28, 2024 (the "Maturity Date"), and convertible into common shares of the Company (each a "Common Share") at a conversion price of $0.13 per Common Share (the "Conversion Price"), subject to the terms of a convertible debenture indenture dated October 28, 2021 (the "Debenture Indenture"), between the Company and Odyssey Trust Company, as debenture trustee; and (ii) 3,846 Common Share purchase warrants of the Company (the "Warrants"). The Convertible Debentures are also subject to an accelerator option, whereby the Company shall have the right but not the obligation to convert some or all of the then outstanding Convertible Debentures into Common Shares at the Conversion Price, if the 30-day volume weighted average price of the Common Shares on the TSX Venture Exchange is greater than $0.26. Each Warrant entitles the holder thereof to purchase one Common Share at $0.16 per Common Share until October 28, 2024.

The net proceeds from the Offering will be used for working capital and general corporate purposes.

The Company has granted the Agents an option to purchase up to an additional 15% of the Units sold pursuant to the initial closing of the Offering at the Issue Price, exercisable in whole or in part of any time up to 30 days after the date hereof.

In connection with the Offering, the Agents received a cash commission in the aggregate amount of $161,540 and 1,863,848 non-transferable broker warrants (the "Broker Warrants"). Each Broker Warrant is exercisable into one Common Share until October 28, 2024, at a price of $0.13 per Common Share.

The Company is exempt from the formal valuation requirement and the minority approval requirement under Multilateral Instrument 61-101 as at the time of the Offering, the fair market value of the consideration for the Offering, insofar as it involved related parties, did not exceed 25% of the Company's market capitalization. Specifically, the aggregate subscription amount of the related parties totaled $1,280,000 and the Company's market capitalization at the time of the transaction equaled approximately $22,224,146 based on the closing price of the Common Shares on the TSX Venture Exchange immediately prior to closing. As a result, related party participation equaled approximately 5.76% of the Company's market capitalization.

"It's exciting to see the overwhelming shareholder appreciation of Kiaro's business plan and how

quickly investor participation flowed in, enabling us to close this financing in short order. The funding will support the operationalization of the newly acquired Ontario, US and Australian assets, including bringing them to the Kiaro brand standard. As a result, we are now more confident than ever in delivering the forecasted $42.7M in revenue and beyond." said Daniel Petrov, Chief Executive Officer of Kiaro.

Kiaro Holdings Corp.

Based in Vancouver, British Columbia, Kiaro is an independent, omni-channel cannabis retailer and distributor. Through existing storefronts across British Columbia, Saskatchewan, and Ontario, and with the completion of the recent acquisition of Hemisphere Cannabis from Aegis Brands, Kiaro has 16 stores with another two expected in early 2022. This is in addition to its wholesale distribution division servicing Saskatchewan, and ecommerce sites in Canada, the US and Australia. Kiaro is driven to introduce new and experienced consumers to a lifelong exploration of cannabis. With more than 70 years of collective retail and wholesale focused experience. Kiaro's leadership team has a proven track record of executing on acquisitions and financings, and moreover growing brands across North America. The Company plans to continue its growth trajectory through its consumercentric retail, ecommerce, and wholesale distribution segments over the coming years.

Forward-Looking Information

This news release contains statements that may constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information may include, among others, statements regarding the future plans, costs, objectives or performance of Kiaro, or the assumptions underlying any of the foregoing. In this news release, words such as "may", "would", "could", "will", "likely", "believe", "expect", "anticipate", "intend", "plan", "estimate" and similar words and the negative form thereof are used to identify forward-looking statements. In this news release, forward-looking statements relate, among other things, to: the use of proceeds of the Offering, overall growth of the Canadian cannabis market and retail opportunities, the award of new operating permits and licenses in various jurisdictions, the future trading price of the Common Shares, and the timing and amount of any dispositions of the Common Shares. Forward-looking statements should not be read as quarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. No assurance can be given that any events anticipated by the forward-looking information will transpire or occur. Forward-looking information is based on information available at the time and/or management's good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties, assumptions and other unpredictable factors, many of which are beyond Kiaro's control. These risks, uncertainties and assumptions include, but are not limited to, those described in filing statement of the Company dated September 29, 2020, a copy of which is available on SEDAR at www.sedar.com, and could cause actual events or results to differ materially from those projected in any forward-looking statements. Furthermore, any forward looking information with respect to future expansion plans is subject to the qualification that management of Kiaro may decide, and the assumptions that any construction or conversion would not be cost prohibitive, required permits will be obtained and the labour, materials and equipment necessary to complete such construction or conversion will be available. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Kiaro does not intend, nor undertake any obligation, to update or revise any forward-looking information contained in this news release to reflect subsequent information, events or circumstances or otherwise, except if required by applicable laws.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

For more information, visit investors kiaro.com

For our most recent analyst report, click here

Daniel Petrov Chief Executive Officer

SOURCE Kiaro Holdings Corp.

t View original content to download multimedia: http://www.newswire.ca/en/releases/archive/October2021/28/c3275.html

%SEDAR: 00045119E

For further information: Investor Related Inquiries: Investor Relations, investors@kiaro.com, 1-888-623-2420

CO: Kiaro Holdings Corp.

CNW 09:25e 28-OCT-21