Mr. Kip Underwood reports

BURCON AGREES TO TERMS WITH ITS ALLIANCE PARTNER FOR A PROTEIN PRODUCTION FACILITY

Burcon NutraScience Corp. has entered into an agreement with its alliance partner, RE ProMan LLC, for the purchase and operation of a protein production facility in North America.

Burcon and ProMan, a company led by John Vassallo, a director and shareholder of the company, have entered into a binding term sheet setting out the key terms of a contract manufacturing arrangement between the parties. These terms form a part of a definitive agreement between the parties with respect to the manufacture of Burcon's protein products and subsequent lease of a production facility, which definitive agreement will be entered into in due course.

"We are excited to join forces with Burcon to deliver their groundbreaking plant-based protein solutions to market," said Mr. Vassallo. "This partnership reflects our strong belief in the future of sustainable, plant-based nutrition and Burcon's ability to lead in the fast-growing, multibillion-dollar protein ingredients industry."

"This partnership marks a pivotal step in Burcon's evolution toward the company we aspire to be," said Kip Underwood, Burcon's chief executive officer. "By pairing a strategic real estate investment with a proven go-to-market approach in food technology, we are seizing the best opportunity in our history to establish a direct route to market for our innovative protein technologies."

Key terms of manufacturing agreement:

• ProMan will purchase a protein production facility and grant Burcon exclusive access to 100 per cent of manufacturing capacity for production of Burcon's plant protein portfolio.
• Burcon will use ProMan as its exclusive manufacturer of Burcon's protein products.
• Burcon will produce and sell its entire portfolio of plant proteins.
• They have signed a seven-year-term manufacturing agreement, after which the manufacturing agreement transitions to a 10-year lease agreement pursuant to which Burcon will lease the production facility from ProMan.
• Burcon to pay ProMan an annual production fee during the initial seven-year term and a lease fee at market rates during the subsequent 10 years.
• ProMan has granted Burcon a right of first refusal to purchase the facility in the event ProMan desires to sell the facility.
• (Additional details are outlined below under manufacturing agreement terms and conditions.)

As announced in Burcon's news release dated Jan. 31, 2025, ProMan has entered into an agreement to acquire the production facility. Closing of the acquisition of the facility is subject to satisfaction of certain conditions. The production facility will have the infrastructure and processing capabilities to produce all of Burcon's proteins, with an option for modular production expansion. The facility will process locally sourced, North American raw materials.

Following the acquisition of the production facility by ProMan and the commencement of the term of the manufacturing agreement, Burcon expects to complete installation of propriety unit operations and begin commercial-scale production of its protein products. First-year sales are projected to be in the range of $1-million to $3-million, with double-digit revenue expected in year two. Gross margins are expected to improve quarterly, targeting over 50 per cent, as capacity utilization increases. The company anticipates profitability and positive cash flow in 2026.

Manufacturing agreement terms and conditions

Exclusivity and term

Under the manufacturing agreement, Burcon's portfolio of plant proteins will be manufactured by ProMan at a production facility located in North America and purchased by Burcon. The term of the manufacturing agreement is seven years, after which the parties will enter into a 10-year lease agreement, during which Burcon expects to pay market lease rates for use of the production facility. The parties have mutually agreed that, subject to certain conditions, Burcon will use ProMan as its exclusive manufacturer of the products, and ProMan will use the production facility exclusively to manufacture the products for Burcon.

Responsibilities

Burcon will be responsible for all costs relating to the acquisition and delivery to ProMan of all raw materials and ingredients for the manufacture of the products, utilities for operation of the production facility and for all routine maintenance costs of the equipment at the production facility. ProMan will be responsible for all costs related to the operation of the production facility, including ProMan's expenses for labour and personnel, permitting, licensing, insurance, overhead, and property taxes.

Annual production fee

In consideration for the acquisition of the products from ProMan under the manufacturing agreement and for making the production facility available for the production of products, Burcon will pay ProMan an annual fee during the term based on a formula comprising a fixed fee and a variable amount consisting of total operating expenses, which include the aggregate production labour, production overhead, insurance premiums and property taxes payable by ProMan in respect of the production facility and the production of the products therein. During the seven-year term of the manufacturing agreement, the fixed fee portion of the annual production fee Burcon will pay ProMan will be $19.8-million (U.S.) in the aggregate. The variable portion of the annual production fee will fluctuate depending on the operating expenses incurred at the production facility, which expenses will be approved by Burcon. The variable portion of the annual production fee only applies to revenue generated from the sale of products produced at the production facility and does not apply to other revenue streams, such as contract research or licensing fees from the licence of its protein technologies.

Pursuant to the Toronto Stock Exchange company manual, ProMan is considered an insider of Burcon since a director of Burcon, Mr. Vassallo, controls ProMan. The aggregate annual production fee payable to ProMan under the manufacturing agreement represents more than 10 per cent of Burcon's current market capitalization. While the actual amount of the variable portion of the annual production fee cannot be determined at this time, since it will fluctuate based on volumes produced, for purposes of Section 501(c) of the manual, the table below sets out illustrative only examples of the aggregate annual production fee that may be payable by Burcon to ProMan under the manufacturing agreement, and the percentage of Burcon's market capitalization as of the date of execution of the term sheet that such aggregate fees would represent. On Jan. 24, 2025, ProMan also extended Burcon a $150,000 (U.S.) loan for a period of one month at a 15-per-cent interest rate. Pursuant to Section 501(c) of the manual, the $1,875 (U.S.) of interest payable to ProMan under the loan is aggregated with the annual production fee payable under the manufacturing agreement as these are transactions with insiders during a six-month period. The addition of the interest payable to ProMan under the loan has no impact to the calculations noted above.

As a result, pursuant to Section 501(c) of the manual, Burcon will be required to obtain disinterested shareholder approval for the payment of the annual production fee and lease fee to ProMan under the manufacturing agreement and subsequent lease. Burcon intends to seek disinterested shareholder approval of the manufacturing agreement (including the lease) by way of consent resolution in accordance with Section 501(c) of the manual rather than by holding a shareholder meeting. For purposes of obtaining disinterested shareholder approval under Section 501(c) of the manual, the 8,270,056 common shares of Burcon, which ProMan, together with its affiliates, exercises direction and control over, which represent 5.8 per cent of Burcon's current issued and outstanding shares, will be excluded from the approval.

Right of first refusal

During the term and the property lease term, ProMan has granted Burcon a right of first refusal to purchase the production facility in the event ProMan desires to sell the production facility or otherwise receives a bona fide offer to buy the production facility from an arm's-length third party.

Representations and warranties

The parties have made certain representations and warranties under the term sheet, and will make representations and warranties in the manufacturing agreement customary for a transaction of its nature.

Termination

The term sheet and manufacturing agreement may be terminated at any time by mutual written agreement of the parties by a party if the other party is in material breach of its obligations under the manufacturing agreement and such breach is not remedied within 180 days or if the other party suffers an insolvency event, as well as certain other termination rights customary for a transaction of this nature.

Conditionality of manufacturing agreement

The obligations of the parties under the term sheet and the manufacturing agreement are subject to receipt by Burcon of all required regulatory approval, including approval of the Toronto Stock Exchange and Burcon's shareholders in accordance with Section 501(c) of the manual, ProMan completing the acquisition of the production facility on or before April 30, 2025, and Burcon completing a minimum financing (including through the rights offering announced on Nov. 20, 2024) of at least $7-million (Canadian).

Related-party transaction

Mr. Vassallo is a related party of Burcon for purposes of Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) as he is a director of Burcon. The manufacturing agreement between Burcon and ProMan is considered a related-party transaction pursuant to MI 61-101. Burcon is relying on the exemption available under Section 5.5(d) of MI 61-101 from the formal valuation requirements and Section 5.7(1)(c) of MI 61-101 from the minority shareholder approval requirements in respect of the manufacturing agreement. The term sheet was approved by the independent members of the board of directors of Burcon, with Mr. Vassallo abstaining from the vote. Burcon will file a material change report containing the prescribed disclosure under MI 61-101 on or before Feb. 13, 2025.

About Burcon NutraScience Corp.

Burcon is a global technology leader in the development of plant-based proteins for foods and beverages. Its proteins exhibit superior functionality, taste and nutrition, making them ideal ingredients for food formulators. With over two decades of experience, Burcon has amassed an extensive patent portfolio covering its novel plant-based proteins derived from pea, canola, soy, hemp and sunflower seeds, among other plant sources. Burcon is committed to delivering next-generation, best-in-class protein solutions, positioning itself as a key player in the rapidly expanding plant-based market. Supporting the growing trend toward a plant-based diet, Burcon offers sustainable protein ingredients that it believes are better for you and better for the planet.

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