ZeroStack Corp. Commitments Disclosure

20. COMMITMENTS AND CONTINGENCIES

Contingencies are possible liabilities arising from past events which, by their nature, will only be resolved when one or more future events not wholly within our control occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. Management assesses loss contingencies related to legal proceedings, tax or other regulatory actions pending against the Company, as well as unasserted claims that may result in such actions. The Company, its legal counsel and other subject matter advisors evaluate the perceived merits of any legal proceedings or unasserted claims or actions as well as the perceived merits of the nature and amount of relief sought or expected to be sought, when determining the amount, if any, to recognize as a provision or assessing the impact on the carrying value of assets. The Company recognizes legal expenses on contingency and provision matters when incurred.

An indemnification arrangement exists when one party has contractually agreed to reimburse another party for losses incurred because of circumstances that existed prior to the arrangement. The Company and its legal counsel assess whether a legal agreement exists and the maximum potential loss to be reimbursed.

Provisions

The Company's current known provisions and contingent liabilities consist of termination benefits and legal disputes. The sales tax provision included in the annual report for the year ended December 31, 2024 was part of the Cannabis Business sold on September 26, 2025, and is included in the current liabilities held for sale line on the consolidated statement of financial position.

The legal disputes balance as of December 31, 2025 involves a legal proceeding that was brought against the Company and Vessel Brand Inc., which was formerly a wholly owned subsidiary of the Company, by the lessor of the warehousing and office space in Carlsbad, CA on June 2, 2025, in the Superior Court of California, County of San Diego. The lessor is claiming breach of lease and written guaranty agreements by the Company and is seeking damages for $1.2 million in unpaid rent, 10% interest on its damages, and reasonable attorneys' fees of the lessor. The Company has assessed the claims and concluded that it is probable that a liability has been incurred and the Company is able to reasonably estimate the loss of $1.2 million. As a result, without acknowledgement (explicitly or implicitly) of any amount of liability arising from this claim, the Company recognized a provision of $1.2 million to reflect the value of the claim. At December 31, 2025, this balance was included in the contingencies line on the consolidated statement of financial position.

The settlement of legal disputes in 2025 was a result of FGH making a voluntary assignment in bankruptcy on March 14, 2025, which triggered an automatic stay on a FGH legal proceeding. The legal proceeding involved a former shareholder of ACA Mueller, an entity that was part of the Company's acquisition of FGH in December 2022, who filed a statement of claim against FGH in the Constance Regional Court in Germany. As the Company no longer controlled FGH as of March 14, 2025, all assets and liabilities of FGH were deconsolidated at that time. See Note 6.

On April 30, 2024, a group representing the sellers of Just Brands LLC to the Company in February 2022 (the "Plaintiffs") brought an action against the Company in the United States District Court for the Southern District of New York (the "Court") claiming that the Company failed to promptly issue additional shares in accordance with a specific formula set forth in the securities purchase agreement after the two-year anniversary of the closing, which occurred on February 24, 2024. The plaintiffs claim that they were entitled to 16,218 common shares and $38.0 million to complete the acquisition of Just Brands LLC. On March 27, 2025, the Court dismissed both the claims brought under the securities laws without prejudice and the state law claims for lack of subject matter jurisdiction because the parties did not have diversity of citizenship in order to maintain those claims in the Court. The Plaintiffs did not amend their complaint against the Company within the thirty-day period allotted by the Court, and, thus, as of April 28, 2025, this litigation was no longer active. On May 9, 2025, the Plaintiffs filed a new action in New York State Supreme Court claiming that the Company failed to issue additional shares in accordance with a specific formula set forth in the securities purchase agreement after the two-year anniversary of the closing, which occurred on February 24, 2024. The Plaintiffs sought specific performance of the issuance of shares as well as monetary damages. The Company had assessed the claims and concluded that it was probable that a liability has been incurred and that the Company was able to reasonably estimate the loss based on the fair value of 16,218 common shares of the Company, which was valued at $0.7 million as of December 31, 2024. On September 18, 2025, the Company and the Plaintiffs entered into a settlement and release agreement (the "Settlement Agreement") whereby the Company paid the Plaintiffs $1.8 million and the Plaintiffs forfeited and waived any claim to shares of the Company, as well as released, waived and forever discharged the Company from any and all known and unknown claims, both current and in the future. The Settlement Agreement was accepted by the New York State Supreme Court, and this litigation is no longer considered active. The $1.1 million difference between the $1.8 million paid by the Company to the Plaintiffs and the $0.7 million estimate prior to the settlement was recorded in the changes in financial instruments fair value on the consolidated statement of loss and comprehensive year ended December 31, 2025.

Legal proceedings

The Company records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and where liability is probable. The Company is engaged from time to time in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all the proceedings and claims against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole as at December 31, 2025.

As discussed above, on June 2, 2025, Vessel Brand, Inc., and the Company were served by the plaintiffs in the Superior Court of California in the County of San Diego for breach of lease and written guaranty agreement in a civil case for $1.2 million plus interest and legal fees. The Company believes that an unfavorable settlement in this matter is probable, and the loss can be reasonably estimated, and, as such, has accrued a liability of $1.2 million to reflect the value of the claim as of December 31, 2025.

Management contracts

The Company is party to management contracts with certain of its executive officers. As at December 31, 2025, these contracts would require payments totaling approximately $3.1 million to be made in the event that such executive officers are terminated (i) "without cause" or (ii) within twelve months following a "change in control" (as such terms are defined in the management contracts). If due to a "change of control", the payments would total $3.9 million. As a triggering event has not taken place, these amounts have not been recorded in these consolidated financial statements.