Rua Bioscience Limited — Proxy Solicitation & Information Statement 2021

Dec 16, 2021

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Notice of Special Meeting 19 January 2022

Notice of Special Meeting of Shareholders

Notice is hereby given that a Special Meeting of Shareholders of Rua Bioscience Limited ( Rua ) will be held virtually as follows:

Date of Meeting: 19 January 2022

Time: commencing at Midday

Online: Via Computershare Investor Services Limited’s ( Computershare ) meeting platform, https://meetnow.global/nz

Letter from the Chairman

Dear Shareholder

Rua was born out of a desire to create intergenerational change by providing sustainable, safe, and well-paid employment for the people of Te Tairāwhiti, particularly our whānau in Ruatorea. It’s this kaupapa (founding principles) that inspired and galvanised a community, and saw us build a ~$56 million NZX-listed company right here in Te Tairāwhiti

Our journey has seen us make bold decisions; building a business with global reach from a place that couldn’t be further from global markets; establishing a world-class cultivation operation in rural Ruatorea, a town that hadn’t seen meaningful investment since the 1900s; building a GMP[1] -certified pharmaceutical facility in Tūranganui a Kiwa; attracting international expertise and bringing whānau home to our small corner of the world.

By definition intergenerational change is meaningful and sustainable. To achieve that, Rua needs to be a global player. Getting to global markets quickly is the key way we build a solid and sustainable business that reinvests in our community.

For that reason, we are pleased to invite you to attend a Special Meeting of Shareholders of Rua to consider the issuance of new Rua shares to the vendor shareholders of Zalm Therapeutics Limited ( Zalm ) in consideration for the acquisition of Zalm as announced to the market on 30 November 2021.

The meeting will be held virtually at [https://meetnow.global/nz] commencing at 12:00 noon on 19 January 2022 (the Special Meeting )). When participating online, shareholders will require their shareholder number, found on the enclosed proxy form for verification purposes. Details on how to participate online are set out below under the heading “Online Participation Details”.

Business

To consider and, if thought fit, pass the following ordinary resolution ( Resolution ), requiring approval by a simple majority of the votes of shareholders entitled to vote and voting:

That the issue of:

• 8,140,000 new ordinary shares ( Initial Shares ); and

• 16,280,000 equity securities having the right to convert into ordinary shares on achievement of the milestones described in the explanatory notes ( Performance Shares ),

to the shareholders of Zalm Therapeutics Limited (which may together eventually result in those subscribers holding 28,735,632 fully paid ordinary shares in the Company) be approved for all purposes, including for the purposes of NZX Listing Rule 4.2.1(a).

1 Good manufacturing practice, a quality standard required for medicinal grade cannabis.

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Further Information and Explanatory Notes

Further information relating to the Resolution is set out in the Explanatory Notes accompanying this Notice of Meeting. Please read and consider the Resolution together with the Explanatory Notes.

Attendance and Voting

Your rights to vote may be exercised by:

• (a) Attending and voting online; or

• (b) Appointing a proxy (or representative) to vote in your place. The proxy need not be a shareholder of Rua and the form of appointment of a proxy and voting instructions accompany this Notice of Meeting. You can appoint a proxy online or complete and send the Proxy Voting Form (enclosed with this Notice of Meeting) by post, email (as a scanned attachment) so that it is received by Computershare by no later than 48 hours before the time for holding the Special Meeting (i.e. before midday on 17 January, 2022).

Online Participation Details

To access the meeting via Computershare’s meeting platform https://meetnow.global/nz , click ‘Go’ under the Rua Bioscience Limited meeting and then click ‘JOIN MEETING NOW’. By using the meeting platform, you will be able to watch the meeting, vote and ask questions online using your smartphone, tablet or desktop device. Please refer to the enclosed Virtual Meeting Guide for more information. You will need the latest version of Chrome, Safari or Edge to access the meeting. Please ensure your browser is compatible.

By order of the Board.

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Trevor Burt

Chair

16 December 2021

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Explanatory Notes

1. Overview of Zalm

Zalm was incorporated in 2018. Zalm is majority owned by Michael Wilding, with other shareholders including Rob Fyfe and interests associated with Cann Group Limited ( Cann Group ), Jonty Edgar and Gregory Driscoll (together the Zalm Vendor Shareholders ).

Zalm is a medicinal cannabis business with the following key features:

• Zalm has a manufacturing and supply agreement ( Supply Agreement ) and technical services agreement ( TSA ) with Cann Group, an ASX-listed medicinal cannabis company with a market capitalisation in excess of A$100 million (as of the date of this Notice of Meeting). The Supply Agreement and TSA have initial terms expiring April 2025 and April 2024 respectively with the option, at Zalm’s sole discretion, to extend the term of both agreements to October 2027. The agreements provide for the supply of a minimum level of Cann Group's production capacity and the provision of technical services (including licensing and regulation, production and processes, access to genetics, breeding and cultivation and new product formulation and manufacturing).

• Through the Supply Agreement, Zalm is well placed to be able to work with Cann Group to access its future pipeline of innovative products.

• Zalm has key distribution agreements with CDC Pharmaceuticals in New Zealand and key export distribution relationships across Rua's key target export markets. These distribution agreements allow Zalm to supply finished medicinal cannabis products directly into retail, healthcare, pharmacy and other wholesale channels.

• Zalm has developed a product suite of three cannabis oil products under the aZana brand comprising THC, CBD and balanced (THC/CBD blend) oils. These products are manufactured at Cann Group's facility and are expected to be available for sale in the second half of 2022 in New Zealand and Europe upon meeting regulatory requirements.

• Zalm has a patient management software platform in development with Atlantis Healthcare (global experts in behaviour change solutions for positive health outcomes) which is a patient and clinician centric tool offering personalised advice and ongoing monitoring and support. This software is seen as a significant value-add to Zalm's product offering by allowing potential patients and clinicians to make a well-informed decision around the appropriate medicinal cannabis product and ongoing support.

You can access additional information, including an investor presentation which provides an overview of Zalm and the rationale for the acquisition, on our website at www.ruabio.com/zalm-transaction. You can also access the NZX announcement in relation to the proposed transaction at

www.nzx.com/companies/RUA/announcements.

2. Why you should support the Resolution to approve the issue of shares to Zalm shareholders

Through the acquisition of Zalm, we combine our unique kaupapa, expertise, product innovation and excellence in cultivation with world-leading scaled and GMP capable international manufacturing and experienced distribution partners. This will position Rua to rapidly accelerate its global business and revenue generation in a capital efficient manner. In particular, the acquisition will support Rua's strategy by:

• a) Securing scalable supply : through Zalm's exclusive Supply Agreement and TSA with Cann Group, Zalm provides Rua with access to globally scaleable supply arrangements for GMP grade medicinal cannabis products. This fits with Rua's strategy to obtain grower partners without the need for significant capital investment and on a larger scale than other alternatives assessed in Australasia. A key component of the Supply Agreement is the ability for Rua to grow its own genetic cannabis varieties in Cann Group’s facility to ensure Rua’s unique genetic cultivars are available at global scale. When the first stage of Cann Group’s facility at Mildura is fully commissioned in early 2022, Cann Group's capacity is estimated to exceed 12,500kg per annum. On completion, the Mildura facility will represent one of Australia's largest and most technologically advanced medicinal cannabis facilities with the ability to increase capacity in future stages up to 70,000kg per annum.

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The Cann Group Supply Agreement has preferential pricing terms which are significantly better than other grower partner opportunities Rua has evaluated to date, alongside no minimum production commitment and a fully variable cost base.

Rua will continue to use its own facilities for research and development of unique cannabis cultivars and small-scale production of premium cannabis products.

• b) Access to markets sooner with a broader product range: the acquisition of Zalm will accelerate Rua's medicinal cannabis product launch, introducing new cannabis oil products (aZana THC26, CBD100 and THC10/CBD15) to complement Rua's own cannabis oil product. Based on current expectations and subject to necessary regulatory approvals, Rua expects that Zalm's products will be available for sale in New Zealand during 2022.

• In addition, the Supply Agreement with Cann Group is expected to facilitate an accelerated timetable for the export of oil and dried flower products to Germany, Rua's key target export market.

• c) Facilitates cross-collaboration between Rua, Cann Group and Zalm: through Cann Group, the acquisition of Zalm will provide opportunities for exchange of expertise through collaboration and secondment for Rua staff at Cann Group's cultivation and manufacturing facilities supporting improved employee development opportunities. Key Zalm executives Michael Wilding and Rob Fyfe will form a Transition Advisory Board, along with the CEO and COO of Cann Group and Dr Andi Grant and Rob Mitchell. This advisory board, led by Rua Director Brett Gamble, will be tasked with successful integration of Zalm and ensuring the objectives of the strategic partnership remain aligned for all stakeholders[2] .

The acquisition of Zalm has been structured to protect Rua from risks associated with non-achievement of critical regulatory approvals and production milestones as detailed below in the section titled "Overview of the Acquisition and Proposed Funding".

3. Overview of the Acquisition and Proposed Funding

On 30 November 2021, Rua and the shareholders of Zalm entered into an agreement for the sale and purchase of all the shares in Zalm ( Share Sale and Purchase Agreement ). Under the Share Sale and Purchase Agreement, Rua will acquire 100% of the shares in Zalm from the shareholders of Zalm on completion. The Zalm Vendor Shareholders who will be issued the Initial Shares and Performance Shares are set out in the following table, along with:

• the percentage of the Rua shares to be ultimately received by each party, following conversion of all Performance Shares; and

• the percentage shareholding in Rua each of the Zalm shareholders will own, following the conversion of all Performance Shares.

•
Existing Zalm Shareholder	Total Number of Rua	Percentage of Rua	Percentage of Rua
	Shares Received1	Shares issued to	Shares on Issue2
		Zalm Shareholders
Michael John Wilding	12,764,334	52.3%	7.7%
Robert Ian Fyfe	6,459,090	26.4%	3.9%
Botanitech Pty Limited	2,041,512	8.4%	1.2%
Jonty George Edgar	1,802,196	7.4%	1.1%
Cala Carbo Limited	1,352,868	5.5%	0.8%
Total	24,420,000	100.0%	14.7%

1. Based on the aggregate of the Initial Shares and the shares that will be issued if both performance milestones are achieved (but ignoring any potential adjustments in accordance with the Share Sale and Purchase Agreement).

2. Reflects the number of shares currently on issue (141,739,267) plus the aggregate number of shares that will be issued to the Zalm shareholders (24,420,000, as defined in footnote 1 above).

2 There will be no changes to the Rua Board or senior management as a result of the Zalm acquisition.

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Completion under the Share Sale and Purchase Agreement is conditional upon the passing of the Resolution by shareholders at the Special Meeting and is expected to occur on 2 February 2022 ( Completion Date ).

The purchase price under the Share Sale and Purchase Agreement, calculated on the equity value equivalent of $10m as at 12 November 2021 (based on a price of approximately $0.4095 per Rua share being the 60-day volume weighted average price up to 12 November 2021), is paid through the issue of:

• 8,140,000 new Rua ordinary shares (i.e. the Initial Shares); and

• 16,280,000 Performance Shares.

Conversion of the Performance Shares into Rua shares is contingent on the completion of two critical milestones. The milestones are as follows:

• Milestone 1 : Cann Group obtaining regulatory approval by the relevant German regulatory authorities for the sale of Cann Group extracted oils (CBD100, THC26 and THC10/CBD15) as medicinal cannabis products and Cann Group confirming to Rua production capacity of 10,000 units for each oil product per annum at specified preferential pricing terms prior to 30 December 2022 (although the expectation is that this will be achieved by July 2022).

• Milestone 2 : Cann Group obtaining regulatory approval by the relevant German regulatory authorities for the sale of dried flower grown at its Mildura facility, Cann Group accepting Rua cultivar (provided Rua is able to supply its cultivar within a reasonable timeframe) and Cann Group confirming to Rua production capacity of 150kg per month at specified preferential pricing terms prior to 31 March 2024 (although the expectation is that this will be achieved by July 2023).

Subject to the adjustment mechanism outlined below:

• If Milestone 1 is achieved 8,140,000 Performance Shares may be converted into an equivalent number of new ordinary Rua shares; and

• If Milestone 2 is achieved, 8,140,000 Performance Shares may be converted into an equivalent number of new ordinary Rua shares.

Achievement of Milestone 1 and Milestone 2 is not interdependent and either Milestone could be achieved but not the other.

The total number of ordinary Rua shares which Performance Shares may be converted into may be adjusted if the following circumstances arise:

• if:

• Rua raises additional capital prior to achievement of Milestone 2 at an issue price below $0.4095; and

• the prevailing share price at satisfaction of Milestone 2 is lower than $0.4095,

the total number of ordinary Rua shares into which the Zalm Vendor Shareholders Performance Shares may convert will be equal to $10,000,000 divided by the higher of the market price and $0.348 (implying an effective cap of 4,315,623 additional shares and a total of 28,735,632 ordinary Rua shares received by the Zalm Vendor Shareholders as consideration under the Share Sale and Purchase Agreement); and

• if the future contracted purchase price for oil and dried flower from Cann Group is above the levels specified in the Share Sale and Purchase Agreement, the number of new ordinary Rua shares into which Performance Shares may convert under the relevant milestone will be reduced or could result in the milestone not being achieved.

On completion and issue of the Initial Shares, Rua will control approximately $1 million of cash retained in Zalm with $500,000 held in escrow by the vendor's solicitors to be released to Rua on achievement of either Milestone 1 or Milestone 2. If neither milestone is achieved, the escrowed cash (plus interest) will be released to the Zalm Vendor Shareholders.

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4. Shareholder approval required

Shareholder approval for the Resolution is being sought in accordance with NZX Listing Rule 4.2.1(a) to allow the Board to issue the Initial Shares and the Performance Shares to the Zalm Vendor Shareholders on the Completion Date.

5. Implications of the Resolution not being approved

If the Resolution is not approved, Rua will not be able to satisfy the conditions of the Share Sale and Purchase agreement and the acquisition of Zalm will not proceed. In such circumstances, absent another agreement being reached with Zalm or the Zalm Vendor Shareholders, Rua has limited alternative grower partner substitutes to support large scale capacity to deliver medicinal cannabis product to market in the short-term.

While Rua has committed considerable internal resources to the negotiation and documentation of the acquisition (and has engaged external advisors to assist with the process), there is no break fee or any other direct costs that will arise if the Resolution is not approved.

6. Dilutional effect if Resolution is approved

Depending on whether one, both or none of Milestone 1 and Milestone 2 are achieved, the Initial Shares and new Rua shares pursuant to the issue of Performance Shares will have the effect of diluting current shareholders' percentage holdings in the Company by between 5.4% to 14.7% as illustrated in the table below (assuming no Performance Share conversion adjustments are required).

Under circumstances where:

• Rua issues new ordinary shares to current or new third party shareholders prior to achievement of Milestone 2 at an issue price below $0.4095;

• Milestone 2 is achieved; and

• the prevailing share price at satisfaction of Milestone 2 is lower than $0.4095,

Rua will be required to convert the Performance Shares into a total of up to 20,595,632 new ordinary Rua shares. The potential individual and overall dilution under this scenario will depend on the amount of new shares issued under the capital raising and whether existing shareholders participated in the capital raising. However, in no circumstances will the dilution exceed 16.9%.

	Number of Shares	Cumulative % Shareholding
Current Shares on Issue	141,739,267
Zalm Vendor Shareholders
Initial Shares issued at	8,140,000	5.4%
Completion Date (on approval of
the Resolution)
Potential shares issued under	8,140,000	10.3%
Milestone 1
Potential shares issued under	8,140,0001	14.7%2
Milestone 2
Total potential Rua shares issued	24,420,0001
to Zalm Vendor Shareholders
Example Shareholder:
Current Shares Held	1,000,000	0.71%
At Completion Date	1,000,000	0.67%
Following Milestone 1	1,000,000	0.63%
FollowingMilestone 2	1,000,000	0.60%3

1. Subject to adjustment in accordance with the Share Sale and Purchase Agreement.

2. Subject to adjustment in accordance with the Share Sale and Purchase Agreement but in no event will this cumulative holding exceed 16.9%.

3. Subject to adjustment of the number of new ordinary Rua shares into which the Performance Shares convert in accordance with the Share Sale and Purchase Agreement but in no event will be less than 0.59%.

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7. Directors' recommendation and shareholder support

The Board unanimously recommends that shareholders vote in favour of the Resolution.

8. Voting by Proxy

Any shareholder who is entitled to vote at the Special Meeting may appoint a proxy to attend and vote on their behalf. A shareholder wishing to appoint a proxy should visit www.investorvote.co.nz and follow the instructions or, if you have a smartphone by scanning the QR code on the first page of the proxy form attached to this Notice of Meeting or complete and return the Proxy Voting Form (enclosed with this Notice of Meeting) in the manner specified on the Proxy Voting Form so that the form is received by Computershare no later than 48 hours before the time for holding the Special Meeting (i.e. before 12.00pm on 17 January 2022). A proxy need not be a shareholder of Rua. The Chair of the meeting is willing to act as proxy for any shareholder who may wish to appoint him for that purpose. The Chair will vote as directed on the Resolution, and intends to vote any discretionary proxies in accordance with the Board recommendation, being in favour of the Resolution (to the extent permitted by the NZX Listing Rules and Rua’s constitution).

To direct your proxy how to vote on the Resolution, you should tick the appropriate box on the Proxy Voting Form. If you appoint a proxy but do not tick the box in relation to the Resolution, you will be deemed to have granted your proxy the discretion to cast your votes as he or she decides. In so doing you acknowledge that the proxy may exercise your right to vote even if he or she has an interest in the outcome of the Resolution (provided that interest does not disqualify him or her from voting under the NZX Listing Rules).

If, in appointing a proxy, you have inadvertently not named someone to be your proxy, or your named proxy does not attend the meeting, the Chair of the meeting will be your proxy and will vote in accordance with your express direction.

If you do not attend the Special Meeting or appoint a proxy, then no vote will be exercised in respect of your shareholding.

9. Entitlement to Vote

All persons on Rua’s register of shareholders as the holders of shares at 5:00 p.m. on 17 January 2022 will be entitled to vote on the Resolution at this Special Meeting.

If you have appointed a proxy to attend the Special Meeting in your place, you may still observe the Special Meeting (but only your proxy may cast your votes).

Any corporation that is a shareholder may appoint a person as its representative to attend the Special Meeting and vote on its behalf, in the same manner as that in which it could appoint a proxy. A corporation wishing to appoint a person must ensure that the representative brings an original of the notice appointing him or her to the meeting. To assist with administration of the Special Meeting, Rua would be grateful if notices appointing representatives are delivered to Computershare Investor Services Limited at Private Bag 92119, Auckland 1142 or at corporateactions@computershare.co.nz, at least 48 hours before the time for the holding of the Special Meeting (i.e. before 12.00pm on 17 January 2022).

Voting on the Resolution is to be by way of poll. No persons are restricted from voting on, or acting as a discretionary proxy in relation to, any resolution referred to in this notice of Special Meeting.

10. Results

Following the Special Meeting, the results will be disclosed via the Market Announcement Platform on www.NZX.com and posted on www.ruabio.com.

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