UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_________________

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 6, 2015

 

YAPPN CORP.

(Exact Name of Small Business Issuer as Specified in Charter)

 

Delaware   000-55082   27-3448069

(State or Other Jurisdiction
of Incorporation)

  

(Commission File Number)

  

(IRS Employer
Identification No.)

 

1001 Avenue of the Americas, 11th Floor

New York, NY

   10018
(Address of Principal Executive Offices )   (Zip Code)

 

Small Business Issuer’s telephone number, including area code:   (888) 859-4441

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the small business issuer under any of the following provisions:

 

☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 
 

 

In this Current Report on Form 8-K, “Company,” “our company,” “us,” and “our” refer to Yappn Corp. and its subsidiaries, unless the context requires otherwise.

 

FORWARD-LOOKING STATEMENTS

 

Our disclosure and analysis in this Current Report on Form 8-K contains some forward-looking statements. Certain of the matters discussed concerning our operations, cash flows, financial position, economic performance and financial condition, and the effect of economic conditions include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and similar expressions are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures and other projections, they are subject to several risks and uncertainties. Investors are cautioned that our forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements.

 

As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections may be better or worse than projected. Given these uncertainties, you should not place any reliance on these forward-looking statements. These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this filing to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events. You are advised, however, to consult any additional disclosures we make in our reports on Form 10-K, Form 10-Q, Form 8-K, or their successors.

 

ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

 

See Item 2.01

 

ITEM 2.01 – ACQUISITION OR DISPOSITION OF ASSETS.

 

On July 6, 2015, the Company, entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo Inc. (“Ortsbo”), a subsidiary of Intertainment Media Inc. (“Intertainment”), both controlled by David Lucatch, our Chief Executive Officer. The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property for a total purchase price of US $17 Million, which will be paid by the assumption of US $1 Million in debt and the issuance of US $16 Million worth of the Company’s restricted common shares (320 Million shares at US $0.05 per share). A description of the terms and conditions of the transaction is incorporated by reference to the copy of the Asset Purchase Agreement between the Company, Ortsbo, Intertainment, and Winterberry Investments Inc., is attached hereto as Exhibit 2.1.

 

2
 

 

The transaction is expected to close on or before September 15, 2015 (the “Closing Date”), and is subject to closing conditions, including but not limited to, each party obtaining all necessary approvals, an agreement to be entered into with Winterberry Investments Inc. as one of the Closing Date transactions, pursuant to which Winterberry will provide certain services for the consideration described therein, and a requirement to consolidate the Company common shares on a ten-to-one (10:1) basis before the Closing Date. No assurances can be provided as to the closing of the transaction or as to the Closing Date.

 

The foregoing description of the Asset Purchase Agreement is a summary and is qualified in its entirety by reference to such document, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

 

ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.

 

On July 15, 2015, the Company completed a secured debt financing of US $4.5 Million of 12% Secured Debentures. The Secured Debentures have a maturity date of December 31, 2015 but may be accelerated under certain conditions. Furthermore, the Company has an obligation to consolidate the Company common shares on a ten-to-one (10:1) basis on or before the Closing Date (as defined in Item 2.01 herein).

 

The foregoing description of the 12% Secured Debentures is a summary and is qualified in its entirety by reference to the form of such document, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

 

In addition, the Company has executed a Security Agreement which provides a general and continuing security interest over all of the Company assets for the payment and performance of the Company’s obligations under the Secured Debentures.

 

The foregoing description of the Security Agreement is a summary and is qualified in its entirety by reference to the form of such document, which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.

 

The offer and sale of all securities listed above to all non-U.S. citizens or entities were affected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Regulation S promulgated under the Securities Act of 1933 (“Securities Act”). The Subscribers acknowledged the following: Subscriber is not a United States Person, nor is the Subscriber acquiring the securities directly or indirectly for the account or benefit of a United States Person. None of the funds used by the Subscriber to purchase the securities have been obtained from United States Persons. For purposes of the foregoing, "United States Person" within the meaning of U.S. tax laws, means a citizen or resident of the United States, any former U.S. citizen subject to Section 877 of the Internal Revenue Code, any corporation, or partnership organized or existing under the laws of the United States of America or any state, jurisdiction, territory or possession thereof and any estate or trust the income of which is subject to U.S. federal income tax irrespective of its source, and within the meaning of U.S. securities laws, as defined in Rule 902(o) of Regulation S, means: (i) any natural person resident in the United States; (ii) any partnership or corporation organized or incorporated under the laws of the United States; (iii) any estate of which any executor or administrator is a U.S. person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; (vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) any partnership or corporation if organized under the laws of any foreign jurisdiction, and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts.

 

3
 

 

ITEM 7.01 REGULATION FD DISCLOSURE.

 

A copy of the press release reflecting the actions in the report is furnished as Exhibit 99.1 to this Current Report filed on Form 8-K and is incorporated herein by reference.

 

Note: the information in this report (including the exhibits) is furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such a filing.  This report will not be deemed a determination or an admission as to the materiality of any information in the report that is required to be disclosed solely by Regulation FD.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

 

(d) Exhibits.

 

The following exhibits are furnished herewith:

 

Exhibit No.  Description
2.1  Asset Purchase Agreement between the Company, Ortsbo Inc., Intertainment Media, Inc., and Winterberry Investments Inc. dated July 6, 2015.
10.1  Form of 12% Secured Debentures.
10.2  Form of Security Agreement, dated July 15, 2015.
99.1  Press Release dated July 15, 2015, issued by the Company.

 

4
 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

July 16, 2015

 

  Yappn Corp.
     
  By: /s/  David Lucatch
     David Lucatch
  Chief Executive Officer

 

 

5

 

 



Exhibit 2.1

 

Asset Purchase Agreement

 

BETWEEN

 

intertainment media inc.

 

- and -

 

ORTSBO INC.

 

- and -

 

YAPPN CORP.

 

- and -

 

WINTERBERRY INVESTMENTS INC.

 

July 6, 2015

 

 
 

  

TABLE OF CONTENTS

 

      Page
       
Article 1   INTERPRETATION 2
       
1.1   Definitions 3
1.2   Certain Rules of Interpretation 11
1.3   Governing Law 12
1.4   Entire Agreement 12
1.5   Schedules and Exhibits 12
       
Article 2   Purchase and Sale 13
       
2.1   Agreement of Purchase and Sale 13
2.2   Future Obligations 13
       
Article 3   Purchase Price 13
       
3.1   Purchase Price 13
3.2   Allocation of Purchase Price 14
3.3   Taxes 14
3.4   United States Securities Regulatory Disclaimer 14
       
Article 4   REPRESENTATIONS AND WARRANTIES OF THE Parent and the SELLER 15
       
4.1   Corporate Existence 15
4.2   Capacity to Enter Agreement 15
4.3   Binding Obligation 15
4.4   Absence of Conflict 16
4.5   No Other Agreements to Purchase 16
4.6   Title to Purchased Assets 16
4.7   Residence of Seller 16
4.8   Sufficiency of Purchased Assets; No Material Contracts or Permits 16
4.9   Regulatory Approvals 17
4.10   Consents 17
4.11   Tax Matters 17
4.12   Intellectual Property 17
4.13   Rights to Use Personal Information 19
4.14   Litigation 19
4.15   No Expropriation 20
4.16   Disclosure 20
       
Article 5   REPRESENTATIONS AND WARRANTIES OF the buyer 20
       
5.1   Corporate Existence of Buyer 20
5.2   Capacity to Enter Agreement 20

 

-i-
 

 

Table of Contents

(continued)

 

      Page
       
5.3   Binding Obligation 21
5.4   Absence of Conflict 21
5.5   Investment Canada Act 21
5.6   Regulatory Approvals 21
5.7   Litigation 21
5.8   GST/HST and QST 21
5.9   Post-closing Share Capital 21
       
Article 6   REPRESENTATIONS AND WARRANTIES OF WINTERBERRY 21
       
6.1   Corporate Existence of Winterberry 21
6.2   Capacity to Enter Agreement 22
6.3   Binding Obligation 22
6.4   Absence of Conflict 22
6.5   Regulatory Approvals 22
       
Article 7   COVENANTS 22
       
7.1   Completion of Closing Date and Pre-Closing Date Transactions 22
7.2   Conduct of Business Before Closing 23
7.3   Actions to Satisfy Closing Conditions 23
7.4   Risk of Loss 23
7.5   Non-Competition and Non-Solicitation 24
7.6   Restricted Business Opportunities 25
7.7   Allocation of Buyer Common Shares and Cash 25
       
Article 8   CLOSING CONDITIONS 25
       
8.1   Conditions for the Benefit of the Buyer 25
8.2   Waiver or Termination by the Buyer 27
8.3   Conditions for the Benefit of the Parent and the Seller 27
8.4   Waiver or Termination by the Seller 28
8.5   Conditions for the Benefit of Winterberry 29
8.6   Waiver or Termination by Winterberry 30
8.7   Conditions Precedent—No Action to Restrain 30
       
Article 9   SURVIVAL AND INDEMNIFICATION 30
       
9.1   Survival of Covenants and Representations and Warranties 30
9.2   Parent and Seller Indemnification for Breach of Warranty, etc 30
9.3   Buyer’s Indemnifications for Breaches of Warranty, etc 31
9.4   Limitation on Mutual Indemnification 31
9.5   Additional Indemnities of the Parent and the Seller 31

 

-ii-
 

 

Table of Contents

(continued)

 

      Page
       
9.6   Additional Buyer’s Indemnities 32
9.7   Notice of Claim 32
9.8   Time Limits for Notice 33
9.9   Exclusive Remedy 33
9.10   Third Party Indemnification 34
       
Article 10   CLOSING ARRANGEMENTS 33
       
10.1   Closing 34
10.2   Closing Procedures 34
10.3   Other Closing Date Transactions 35
       
Article 11   GENERAL 35
       
11.1   Investment Canada Act Reporting 35
11.2   Time of Essence 35
11.3   Notices 35
11.4   Severability 38
11.5   Submission to Jurisdiction 38
11.6   Amendment and Waiver 39
11.7   Further Assurances 39
11.8   Assignment and Enurement 39
11.9   Counterparts and Electronic Delivery 39
11.10   No Broker 39
11.11   Payment and Currency 39
11.12   Vienna Convention 40
11.13   No Contra Proferentem 40
11.14   Acknowledgement 40
11.15   Language 40
11.16   Expenses 40

 

-iii-
 

   

Asset PURCHASE AGREEMENT

 

THIS AGREEMENT is dated as of July 6, 2015

 

BETWEEN:

 

INTERTAINMENT MEDIA INC., a corporation existing under the laws of Alberta

 

(the “Parent”)

 

- and -

 

ORTSBO INC., a corporation existing under the laws of Ontario

 

(the “Seller”)

 

- and -

 

YAPPN CORP., a corporation existing under the laws of Delaware

 

(the “Buyer”)

 

- and -

 

WINTERBERRY INVESTMENTS INC., a corporation existing under the laws of Ontario

 

(“Winterberry”)

 

PREAMBLE:

 

A.The Parent is a public company listed on the TSX-V and legally and beneficially owns 93.05% of the issued and outstanding shares of the Seller.

 

B.The Seller carries on the Business.

 

C.The Seller wishes to sell, and the Buyer wishes to purchase, all of the Seller’s assets that are used in connection with the Business.

 

- 2 -
 

 

THEREFORE, the Parties agree as follows:

 

Article 1
INTERPRETATION

 

1.1Definitions

 

In this Agreement, the following terms have the following meanings:

 

1.1.1“Affiliate” means, with respect to any Person, any Person that directly or indirectly controls, is controlled by, or is under common control with the first Person. The terms “control”, “controlled by” and “under common control with” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting shares, by contract or otherwise.

 

1.1.2“Agreement” means this agreement, including all Schedules, as it may be confirmed, amended, modified, supplemented or restated by written agreement between the Parties.

 

1.1.3“Business” means the following components of the business of the Seller: developing technologies, software and processes related to language translation and communication services.

 

1.1.4“Business Day” means any day excluding a Saturday, Sunday or statutory holiday in the Province of Ontario or the State of New York and also excluding any day on which the principal chartered banks located in the City of Toronto or New York City are not open for business during normal banking hours.

 

1.1.5“Buyer” is defined in the recital of the Parties above.

 

1.1.6“Buyer’s Certificate of Incorporation” means the certificate of incorporation of the Buyer issued by the State of Delaware dated November 3, 2010, as amended.

 

1.1.7“Buyer Common Shares” means shares of common stock in the capital of the Buyer.

 

1.1.8“Buyer Debentures” means up to $5.5 million of 12% secured debentures to be issued by the Buyer to certain subscribers, including Winterberry.

 

1.1.9“Claim” means any claim, demand, action, cause of action, suit, arbitration, investigation, proceeding, complaint, grievance, charge, prosecution, assessment or reassessment, including any appeal or application for review.

 

1.1.10“Closing” means the completion of the sale to, and purchase by, the Buyer of the Purchased Assets pursuant to this Agreement.

 

1.1.11“Closing Date” means September 15, 2015 or any other date that the Parties may agree is the date upon which the Closing will take place.

 

- 3 -
 

 

1.1.12“Closing Time” means 10:00 am (Toronto time) on the Closing Date at which the Closing takes place.

 

1.1.13“Closing Date Transactions” means the transactions described in Schedule 1.1.13.

 

1.1.14“Commodity Taxes” means all Taxes levied on or measured by, or referred to as transfer, land transfer, registration charges, gross receipt, sales, provincial sales, use, consumption, GST/HST, QST, value-added, turnover, excise or stamp, all customs duties, countervail, anti-dumping and special import measures and all import and export taxes.

 

1.1.15“Communication” means any notice, demand, request, consent, approval or other communication which is required or permitted by this Agreement to be given or made by a Party.

 

1.1.16“Contract” means any agreement, understanding, undertaking, commitment, licence, or lease, whether written or oral.

 

1.1.17“Damage Notice” is defined in Section 7.4.

 

1.1.18“Employees” means all personnel and independent contractors employed, engaged or retained by the Seller in connection with the Business, including any that are on medical or long-term disability leave or other statutory or authorized leave of absence.

 

1.1.19“Encumbrance” means any security interest, mortgage, charge, pledge, hypothec, lien, encumbrance, restriction, option, adverse claim, right of others or other encumbrance of any kind.

 

1.1.20“ETA” means the Excise Tax Act (Canada).

 

1.1.21“Excluded Assets” means the property and assets of the Seller except the Purchased Intellectual Property.

 

1.1.22“Excluded Liabilities” means all liabilities of the Parent and the Seller existing as of the Closing Time or relating to the period ending at the Closing Time other than the Parent Debt, the Seller Debt and the Ortsbo Debt, including for certainty:

 

1.1.22.1any liability of the Parent or the Seller to any bank or other financial institution by way of loan or other credit facility;

 

1.1.22.2any liability of the Parent or the Seller for any personal injury Claims arising by reason of the occurrence on or before the Closing Date of any injury, accident or other alleged damage-causing event with respect to the operations of the Parent or the Seller on or before the Closing Date or relating to products manufactured or sold or services performed by the Parent or the Seller on or before the Closing Date that provide the basis for a personal injury Claim after the Closing Date;

 

- 4 -
 

 

1.1.22.3any liability of the Parent or the Seller to their respective shareholders, affiliates or associates or any other Person not dealing at arm’s length with any of them;

 

1.1.22.4any liability of the Parent or the Seller for any Claims relating to the Excluded Assets;

 

1.1.22.5any liability of the Parent or the Seller, absolute or contingent, incurred, due or accruing due, whether before or after the Closing Date, relating to the Excluded Assets or any Contract relating to the Excluded Assets, and any obligations, absolute or contingent, arising from, incidental to, or in any way related to the ownership or operation of the Excluded Assets;

 

1.1.22.6any liability of the Seller for any breach by the Seller of any Laws relating to the operation of the Business or use of the Purchased Assets up to the Closing Date;

 

1.1.22.7any liability incurred or accruing due before the Closing Time under any Contract;

 

1.1.22.8any liability of the Parent or the Seller for any Taxes (including penalties, fines and interest); and

 

1.1.22.9any liability of the Seller for wages, salary, bonus, vacation pay or other remuneration, severance pay, pension obligations or other obligations under any employee plans or otherwise, or for any Claims pursuant to workers’ compensation or similar Laws, relating to any Employees while employed, engaged or retained by the Seller in the Business.

 

1.1.23“Future Obligations” means all obligations arising from or incidental to the ownership or operation of, or in any way related to, the Purchased Assets which are not Excluded Liabilities and which arise after the Closing Time.

 

1.1.24“Governmental Authority” means:

 

1.1.24.1any federal, provincial, state, local, municipal, regional, territorial, aboriginal, or other government, governmental or public department, branch, ministry, or court, domestic or foreign, including any district, agency, commission, board, arbitration panel or authority and any subdivision of any of them exercising or entitled to exercise any administrative, executive, judicial, ministerial, prerogative, legislative, regulatory, or taxing authority or power of any nature; and

 

1.1.24.2any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of them, and any subdivision of any of them.

 

- 5 -
 

 

1.1.25“GST/HST” means the goods and services tax and the harmonized sales tax imposed under the ETA.

 

1.1.26“Indemnified Party” means the Party or other indemnified Person entitled to make a Claim for indemnification under any provision of Article 9.

 

1.1.27“Indemnifying Party” means the Party providing indemnification under any provision of Article 9

 

1.1.28“Indemnity Claim” is defined in Section 9.7.

 

1.1.29“Indemnity Notice” is defined in Section 9.7.

 

1.1.30“Insurance Policies” means the insurance policies maintained by the Seller with respect to the Purchased Assets.

 

1.1.31“Intellectual Property” means:

 

1.1.31.1trade-marks, design marks, logos, service marks, certification marks, official marks, trade names, business names, corporate names, trade dress, distinguishing guises, slogans, meta tags, keywords, adwords and other characters, brand elements or other distinguishing features used in association with wares or services, whether or not registered or the subject of an application for registration and whether or not registrable, and associated goodwill (“Trade-marks”);

 

1.1.31.2inventions, arts, processes, machines, articles of manufacture, compositions of matter, business methods, formulae, developments and improvements, whether or not patented or the subject of an application for patent and whether or not patentable, methods and processes for making any of them, and related documentation (whether in written or electronic form) and know-how (“Inventions”);

 

1.1.31.3software in source code or object code form, documentation, literary works, artistic works, pictorial works, graphic works, musical works, dramatic works, audio visual works, performances, sound recordings and signals, including their content, and any compilations of any of them, whether or not registered or the subject of an application for registration, or capable of being registered (“Works”);

 

1.1.31.4domain names, whether registered primary domain names or secondary or other higher level domain names (“Domain Names”);

 

1.1.31.5industrial designs and all variants of industrial designs, whether or not registered or the subject of an application for registration and whether or not registrable (“Designs”); and

 

- 6 -
 

 

1.1.31.6trade secrets, technical expertise, and research data and other confidential information relating to goods and services.

 

1.1.32“Intellectual Property Rights” means:

 

1.1.32.1any common law principle or statutory provision which may provide a right in Intellectual Property, including all:

 

1.1.32.1.1common law rights and registrations, pending applications for registration and rights to file applications for the Trade-marks, including all rights of priority;

 

1.1.32.1.2patents, pending patent applications and rights to file applications for the Inventions, including all rights of priority and rights in continuations, continuations-in-part, divisions, reissues, renewals, re-examinations, exclusions, and other derivative applications and patents;

 

1.1.32.1.3copyrights in Works and all registrations, pending applications for registration and rights to file applications for Works and all moral rights and benefits of waivers of moral rights in Works;

 

1.1.32.1.4registrations, pending applications for registration and rights to file applications for registration of Domain Names and all other common law and statutory rights in Domain Names; and

 

1.1.32.1.5industrial design rights, design patents, design registrations, pending patent and design applications and rights to file applications for Designs, including all rights of priority and rights in continuations, continuations-in-part, divisions, re-examinations, reissues and other derivative applications;

 

1.1.32.2all rights in licences, sub-licences, franchise agreements, waivers and other contractual rights in any of the items listed in Section 1.1.32; and

 

1.1.32.3all rights to enforce the rights and obtain remedies for a violation of any of the rights listed in Sections 1.1.32.1 and 1.1.32.2.

 

1.1.33“Investment Canada Act” means the Investment Canada Act (Canada).

 

1.1.34“ITA” means the Income Tax Act (Canada).

 

1.1.35“Knowledge of the Seller” means the knowledge that the Parent or the Seller either has, or would have obtained, after having made or caused to be made all reasonable inquiries necessary to obtain informed knowledge, including inquiries of the records and management employees of the Parent and the Seller, who are reasonably likely to have knowledge of the relevant matter.

 

- 7 -
 

 

1.1.36“Law” or “Laws” means all laws, statutes, codes, ordinances, decrees, rules, regulations, by-laws, statutory rules, principles of law, published policies and guidelines, judicial or arbitral or administrative or ministerial or departmental or regulatory judgments, orders, decisions, rulings or awards, including general principles of common and civil law, and the terms and conditions of any grant of approval, permission, authority or licence of any Governmental Authority, and the term “applicable” with respect to Laws and in a context that refers to one or more Persons, means that the Laws apply to the Person or Persons, or its or their business, undertaking or property, and emanate from a Governmental Authority having jurisdiction over the Person or Persons or its or their business, undertaking or property.

 

1.1.37“Licence Agreements” is defined in Section 4.12.6.

 

1.1.38“Licensed IP” means the Intellectual Property and Intellectual Property Rights owned by Persons other than the Seller and that are licensed to the Seller or that are otherwise used in, necessary for or relate to the conduct of the Business, and includes any Intellectual Property owned by those Persons relating to the Technology or the Technical Information.

 

1.1.39“Loss” means any loss, liability, damage, cost, expense, charge, fine, penalty or assessment including the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise and all interest, fines, penalties and reasonable professional fees and disbursements.

 

1.1.40“Material Adverse Effect” means any event, occurrence, fact, condition or change: (i) that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to the business, results of operations, condition or assets of the Business or the value of the Purchased Assets; or (ii) the knowledge of which would have affected any decision of a reasonable Person in the Buyer’s position regarding whether to enter into this Agreement, or would affect any decision of a reasonable Person in the Buyer’s position regarding whether to complete the transactions contemplated by this Agreement.

 

1.1.41“Material Contract” means a Contract that:

 

1.1.41.1involves or may result in the payment of money or money’s worth by or to the Seller in an amount in excess of $500,000;

 

1.1.41.2has an unexpired term of more than 3 years (including renewals);

 

1.1.41.3cannot be terminated by the Seller without penalty upon less than thirty (30) days’ notice; or

 

- 8 -
 

 

1.1.41.4the termination of which, or under which the loss of rights, would constitute a Material Adverse Effect.

 

1.1.42“Originating Persons” means all current and former Employees, officers, directors and consultants of the Seller, including, in the case of a consultant that is not an individual, all employees, officers, directors, shareholders and partners of the consultant.

 

1.1.43“Ortsbo Debt” means the aggregate amount of $500,000 owed by the Seller to Amir Bem, Toronto Tree Top Holdings Ltd. and David Berry.

 

1.1.44“Ortsbo Debt Assumption Agreement” is defined in Section 3.1.4.

 

1.1.45“Owned IP” means all Intellectual Property that is owned by the Seller, including Intellectual Property relating to the Technology and the Technical Information, as well as all Intellectual Property Rights that are owned or enforceable by the Seller;

 

1.1.46“Parent” is defined in the recital of the Parties above.

 

1.1.47“Parent Debt” means the sum of approximately $500,000 owed by the Parent to Winterberry.

 

1.1.48“Parent Debt Assumption Agreement” is defined in Section 3.1.2.

 

1.1.49“Parties” means the Parent, the Seller and the Buyer, collectively, and “Party” means either of them.

 

1.1.50“Permits” means all authorizations, registrations, permits, certificates of approval, approvals, grants, licences, quotas, consents, commitments, rights or privileges (other than those relating to the Intellectual Property) issued or granted by any Governmental Authority to the Seller in respect of the Purchased Assets.

 

1.1.51“Person” will be broadly interpreted and includes:

 

1.1.51.1a natural person, whether acting in his or her own capacity, or in his or her capacity as executor, administrator, estate trustee, trustee or personal or legal representative, and the heirs, executors, administrators, estate trustees, trustees or other personal or legal representatives of a natural person;

 

1.1.51.2a corporation or a company of any kind, a partnership of any kind, a sole proprietorship, a trust, a joint venture, an association, an unincorporated association, an unincorporated syndicate, an unincorporated organization or any other association, organization or entity of any kind; and

 

1.1.51.3a Governmental Authority.

 

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1.1.52“Personal Information” means information about an individual who can be identified by the Person who holds that information.

 

1.1.53“Privacy Laws” means any Laws that regulate the collection, use or disclosure of Personal Information.

 

1.1.54“Purchase Price” is defined in Section 3.1.

 

1.1.55“Purchased Assets” means the Purchased Intellectual Property.

 

1.1.56“Purchased Intellectual Property” means: (i) all Intellectual Property and Intellectual Property Rights that are owned by the Seller, including without limitation those that relate to, are associated with, or are derived from the patents and patent applications set out in Schedule 1.1.56 and any research and design in respect thereof or improvements thereto; and (ii) the Licensed IP.

 

1.1.57“QST” means the Quebec sales tax imposed under the QSTA.

 

1.1.58“QSTA” means an Act representing the Quebec sales tax.

 

1.1.59“Restricted Business” means the Business and other any business that would be directly or indirectly competitive with the Business.

 

1.1.60“Restricted Business Opportunity” means any potential opportunity in the Restricted Business.

 

1.1.61“Restricted Period” has the meaning set out in Section 7.5.1.

 

1.1.62“Seller” is defined in the recital of the Parties above.

 

1.1.63“Seller Debt” means the aggregate sum of $3,000,000 owed by the Seller to the Seller Debtholders, as described in more detail in Schedule 10.3.1

 

1.1.64“Seller Debt Assumption Agreement” is defined in Section 3.1.2.

 

1.1.65“Seller Debtholders” means those Persons identified in Schedule 1.1.65.

 

1.1.66“Tax” means all taxes, duties, fees, premiums, assessments, imposts, levies, rates, withholdings, dues, government contributions and other charges of any kind whatsoever, whether direct or indirect, together with all interest, penalties, fines, additions to tax or other additional amounts, imposed by any Governmental Authority.

 

1.1.67“Tax Law” means any Law that imposes Taxes or that deals with the administration or enforcement of liabilities for Taxes.

 

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1.1.68“Technical Information” means all technical information owned by or licensed (expressly or impliedly) to the Seller including all:

 

1.1.68.1information of a scientific or business nature, regardless of its form;

 

1.1.68.2documentation with respect to research, development, demonstration or engineering work;

 

1.1.68.3information that can be or is used to define a design or process, or to procure, produce, support or operate materials or equipment;

 

1.1.68.4information regarding methods of production;

 

1.1.68.5other drawings, blueprints, patterns, plans, flow charts, equipment parts lists, computer software and procedures, specifications, protocols, data structures, formulas, designs, technical data, descriptions, related instruction manuals, records, passwords, and procedures; and

 

1.1.68.6data and databases, whether registered or unregistered.

 

1.1.69“Technology” means all technology owned by, or licensed to, the Seller.

 

1.1.70“Third Party Claim” is defined in Section 9.7.

 

1.1.71“TSX-V” means the TSX Venture Exchange.

 

1.1.72“Winterberry” is defined in the recital of the Parties above.

 

1.1.73“Winterberry Agreement” means the agreement to be entered into between the Seller and Winterberry as one of the Closing Date Transactions, pursuant to which Winterberry will provide certain services to the Seller for the consideration described therein.

 

1.2Certain Rules of Interpretation

 

1.2.1In this Agreement, words signifying the singular number include the plural and vice versa, and words signifying gender include all genders. Every use of the words “including” or “includes” in this Agreement is to be construed as meaning “including, without limitation” or “includes, without limitation”, respectively.

 

1.2.2The division of this Agreement into Articles and Sections, the insertion of headings and the inclusion of a table of contents are for convenience of reference only and do not affect the construction or interpretation of this Agreement.

 

1.2.3Wherever in this Agreement reference is made to a calculation to be made in accordance with GAAP, the reference is to Canadian generally accepted accounting principles applicable to publicly accountable enterprises under Part I of the CPA Canada Handbook of the Chartered Professional Accountants of Canada applicable as at the date on which the calculation is made or required to be made in accordance with GAAP.

 

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1.2.4References in this Agreement to an Article, Section, Schedule or Exhibit are to be construed as references to an Article, Section, Schedule or Exhibit of or to this Agreement unless otherwise specified.

 

1.2.5Unless otherwise specified, any reference in this Agreement to any statute includes all regulations and subordinate legislation made under or in connection with that statute at any time, and is to be construed as a reference to that statute as amended, modified, restated, supplemented, extended, re-enacted, replaced or superseded at any time.

 

1.3Governing Law

 

This Agreement is governed by, and is to be construed and interpreted in accordance with, the Laws of the Province of Ontario and the Laws of Canada applicable in that Province.

 

1.4Entire Agreement

 

This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties, and there are no representations, warranties or other agreements between the Parties , express or implied, in connection with the subject matter of this Agreement except as specifically set out in this Agreement. No Party has been induced to enter into this Agreement in reliance on, and there will be no liability assessed, either in tort or contract, with respect to, any warranty, representation, opinion, advice or assertion of fact, except to the extent it has been reduced to writing and included as a term in this Agreement.

 

1.5Schedules and Exhibits

 

The following is a list of Schedules and Exhibits:

 

Schedule   Subject Matter
1.1.13   Closing Date Transactions
1.1.56   Patents and Applications
1.1.65   Seller Debtholders
10.3.1   Allocation of Consideration to Seller Debtholders

 

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Article 2
Purchase and Sale

 

2.1Agreement of Purchase and Sale

 

Subject to the terms and conditions of this Agreement, on the Closing Date the Seller will sell and the Buyer will purchase, as of and with effect from the Closing Time, the Purchased Assets.

 

2.2Future Obligations

 

Effective as of the Closing Time, the Buyer will, incidental to the acquisition of the Purchased Assets, pay when due, perform and discharge the Future Obligations, but, for greater certainty, the Buyer will not assume, pay, perform, or discharge any of the Excluded Liabilities or any other liabilities or obligations of the Seller (other than the Parent Debt, the Seller Debt and the Ortsbo Debt), all of which will remain the sole responsibility of the Seller or the Parent.

 

Article 3
Purchase Price

 

3.1Purchase Price

 

The aggregate purchase price payable by the Buyer to the Seller for the Purchased Assets is equal to $17,000,000 (the “Purchase Price”) and will be satisfied by the Buyer at the Closing Time as follows:

 

3.1.1by issuing an aggregate of 260,000,000 Buyer Common Shares, at a price of $0.05 per Buyer Common Share, as follows:

 

3.1.1.183,125,000 Buyer Common Shares to the Seller who directs that such 83,125,000 Buyer Common Shares be issued to the Parent; and

 

3.1.1.2176,875,000 Buyer Common Shares to the Seller who directs that such 176,875,000 Buyer Common Shares be issued to Winterberry, or as directed by Winterberry, pursuant to the terms of the Winterberry Agreement;

 

3.1.2by assuming from the Seller, and agreeing to pay when due, perform and discharge, the Parent Debt under the terms of an assumption agreement in a form and of substance to be agreed to by the Parties acting reasonably (the “Parent Debt Assumption Agreement”);

 

3.1.3by assuming from the Seller, and agreeing to pay when due, perform and discharge, the Seller Debt under the terms of an assumption agreement in a form and of substance to be agreed to by the Parties acting reasonably (the “Seller Debt Assumption Agreement”); and

 

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3.1.4by assuming from the Seller, and agreeing to pay when due, perform and discharge, the Ortsbo Debt under the terms of an assumption agreement in a form and of substance to be agreed to by the Parties acting reasonably (the “Ortsbo Debt Assumption Agreement”).

 

3.2Allocation of Purchase Price

 

The Purchase Price will be allocated among the Purchased Assets in a manner to be agreed to in writing by the Seller and the Buyer no more than sixty (60) days following the Closing Date. The Seller and the Buyer will cooperate in the filing of any elections under the ITA and any other applicable Tax Law as may be necessary or desirable to give effect to that allocation for Tax purposes. The Seller and the Buyer will prepare and file their respective Tax returns in a manner consistent with that allocation and those elections.

 

3.3Taxes

 

3.3.1The Seller will pay all Taxes relating to the Purchased Assets which arise before, or are related to a period of time before, the Closing Time.

 

3.3.2The Seller and the Buyer agree that the sale of the Purchased Assets are zero-rated for GST/HST pursuant to sections 10 and 10.1 of Part V of Schedule VI to the ETA and sections 188 and 188.1 of the QSTA, and that the Purchase Price is inclusive of GST/HST and QST, if any. The Buyer will be liable for all other Commodity Taxes properly payable by the Buyer in connection with the sale and transfer of the Purchased Assets.

 

3.4United States Securities Regulatory Disclaimer

 

3.4.1The issuance of the Buyer Common Shares listed above (and the Buyer Debentures referenced in Schedule 1.1.13 herein) will be effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Regulation S promulgated under the Securities Act of 1933, as amended. The Parent, Selling Debtholders, and Winterberry, as a condition to receiving the Buyer Common Shares (and the recipients of Buyer Debentures referenced in Schedule 1.1.13 herein), will be required to acknowledge the following: They are not a United States Person, nor are they acquiring the Buyer Common Shares (and/or the Buyer Debentures referenced in Schedule 1.1.13 herein) directly or indirectly for the account or benefit of a United States Person. For these purposes, “United States Person” within the meaning of United States tax laws, means a citizen or resident of the United States, any former United States citizen subject to Section 877 of the Internal Revenue Code, any corporation, or partnership organized or existing under the laws of the United States of America or any state, jurisdiction, territory or possession thereof and any estate or trust the income of which is subject to United States federal income tax irrespective of its source, and within the meaning of United States securities laws, as defined in Rule 902(o) of Regulation S, means: (i) any natural person resident in the United States; (ii) any partnership or corporation organized or incorporated under the laws of the United States; (iii) any estate of which any executor or administrator is a United States person; (iv) any trust of which any trustee is a United States person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a United States person; (vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) any partnership or corporation if organized under the laws of any foreign jurisdiction, and formed by a United States person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts.

 

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3.4.2The Buyer Common Shares, when issued, will be: (i) duly authorized and validly issued and are fully paid and nonassessable; and (ii) issued in compliance with all applicable state and federal laws concerning the issuance of securities. The rights, preferences, privileges and restrictions of the shares of the Buyer Common Shares are as stated in the Buyer’s Certificate of Incorporation.

 

Article 4
REPRESENTATIONS AND WARRANTIES OF THE Parent and the SELLER

 

Each of the Seller and the Parent represents and warrants to the Buyer, on a joint and several basis, as follows, and acknowledges that the Buyer is relying upon these representations and warranties in connection with the purchase of the Purchased Assets, despite any investigation made by or on behalf of the Buyer, and that this reliance is a right that has been bargained for, and forms part of the consideration in the transactions contemplated by this Agreement.

 

4.1Corporate Existence

 

The Parent is a corporation duly incorporated and validly existing under the laws of the Province of Alberta. The Seller is a corporation duly incorporated and validly existing under the laws of the Province of Ontario.

 

4.2Capacity to Enter Agreement

 

Each of the Parent and the Seller has all necessary corporate power, authority and capacity to enter into and perform its obligations under this Agreement.

 

4.3Binding Obligation

 

The execution and delivery of this Agreement and the completion of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of each of the Parent and the Seller. This Agreement has been duly executed and delivered by each of the Parent and the Seller and constitutes a valid and binding obligation of each of the Parent and the Seller, enforceable against each of them in accordance with its terms, subject to applicable bankruptcy, insolvency and other Laws of general application limiting the enforcement of creditors’ rights generally and to the fact that equitable remedies, including specific performance, are discretionary and may not be ordered in respect of certain defaults.

 

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4.4Absence of Conflict

 

None of the execution and delivery of this Agreement, the performance of the Parent’s obligations or the Seller’s obligations under this Agreement, or the completion of the transactions contemplated by this Agreement will (with or without the giving of notice or lapse of time, or both):

 

4.4.1result in or constitute a breach of any term or provision of, or constitute a default under the articles or by-laws or any resolutions of the board of directors or shareholders of the Seller or the Parent;

 

4.4.2result in the creation or imposition of any Encumbrance on the Purchased Assets;

 

4.4.3contravene any applicable Law; or

 

4.4.4contravene any judgment, order, writ, injunction or decree of any Governmental Authority.

 

4.5No Other Agreements to Purchase

 

No Person other than the Buyer has any written or oral agreement or option or any right or privilege (whether by Law, pre-emptive, contractual or otherwise) capable of becoming an agreement or option for the purchase or acquisition from the Seller of any of the Purchased Assets or of forming an Encumbrance against any of the Purchased Assets.

 

4.6Title to Purchased Assets

 

The Seller owns, possesses and has good and marketable title to all of the Purchased Assets free and clear of all Encumbrances. At Closing, the Seller will have the absolute and exclusive right to sell the Purchased Assets to the Buyer as contemplated by this Agreement.

 

4.7Residence of Seller

 

The Seller is not a non-resident of Canada for purposes of the ITA.

 

4.8Sufficiency of Purchased Assets; No Material Contracts or Permits

 

4.8.1The Purchased Assets comprise all of the undertaking, assets and property required for the Buyer to carry on the Business as it is currently conducted or intended to be conducted by the Seller.

 

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4.8.2No Contracts to which Seller or Parent is a party, Material Contracts or Permits are used by, or necessary for, the Seller to carry on the Business as it is currently conducted or intended to be conducted by the Seller.

 

4.9Regulatory Approvals

 

No authorization, approval, order, consent of, or filing with, any Governmental Authority is required on the part of the Parent or the Seller in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be delivered under this Agreement except for conditional approval in respect of the Parent of the transactions contemplated under this Agreement from the TSX-V, which approval has been obtained by the Parent prior to the date of this Agreement.

 

4.10Consents

 

There is no requirement to obtain any consent, approval or waiver of a party under any Contract to which the Seller is bound in order to complete the transactions contemplated by this Agreement.

 

4.11Tax Matters

 

The Seller has paid or made arrangements for the payment of all Taxes in respect of the Purchased Assets which, as of the Closing Date, are capable of forming or resulting in a lien on the Purchased Assets or of becoming a liability or obligation of the Buyer. To the Knowledge of the Seller there are no Claims either in progress, pending or threatened, in connection with any Taxes in respect of the Purchased Assets. The Seller has deducted, withheld or collected, and remitted all amounts required to be deducted, withheld, collected or remitted by it in respect of any Taxes owing in respect of the Purchased Assets.

 

4.12Intellectual Property

 

4.12.1The Seller is the only Person to have any right of title and interest, legal or beneficial, in any of the Owned IP which forms part of the Purchased Intellectual Property, all of which is owned by the Seller free and clear of any Encumbrances, and none of which is registered in the name of any Person other than the Seller. No consent of any Person is necessary to make, construct, use, reproduce, translate, license, sell, modify, update, enhance or otherwise exploit any Owned IP that forms part of the Purchased Intellectual Property. All Originating Persons have, by irrevocable written assignments, transferred to the Seller all Intellectual Property Rights, and waived all moral rights, that any of them may have enjoyed with respect to any Owned IP that forms part of the Purchased Intellectual Property to which they contributed.

 

4.12.2The Seller has not assigned, licensed or otherwise granted any interest in any Owned IP that forms part of the Purchased Intellectual Party, including any right to receive royalties or other payments, to any Person.

 

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4.12.3To the Knowledge of the Seller, no Person has infringed or misappropriated, or is infringing or misappropriating, any Intellectual Property Right in any part of the Purchased Intellectual Property.

 

4.12.4All Intellectual Property Rights relating to Owned IP that forms part of the Purchased Intellectual Property are in full force and effect, and all required registration or other fees have been paid to maintain them all in good standing in those jurisdictions where any such Owned IP is used.

 

4.12.5Each registered Trade-mark that is Owned IP and forms part of the Purchased Intellectual Property is used in its jurisdiction of registration, in association with all wares and services for which it is registered and in the form appearing in the applicable registration, and has been used with sufficient continuity in association with those wares and services and in that form, and any use by any licensee of any such Trade-mark has been controlled and enforced by the Seller (as applicable) so as to avoid any abandonment, cancellation, expungement or other such challenge against that Trade-mark associated with non-continuous use, or otherwise (including the unenforceability of the Trade-mark), in each applicable jurisdiction.

 

4.12.6The Seller has entered into valid and enforceable written agreements pursuant to which the Seller has been granted all licenses, rights and permissions to use, reproduce, translate, sub-license, sell, modify, update, enhance or otherwise exploit the Licensed IP (including, if required, the right to incorporate such Licensed IP into other Purchased Intellectual Property and to create and own derivatives and modifications of such Licensed IP) (the “Licence Agreements”), and:

 

4.12.6.1all Licence Agreements are in full force and effect and neither the Seller nor any licensor is in default of its obligations under any such Licence Agreement;

 

4.12.6.2to the Knowledge of the Seller, no licensor of any Licensed IP is involved in an insolvency, bankruptcy or similar proceeding or has had a receiver appointed;

 

4.12.6.3all License Agreements for Licensed IP are irrevocable licenses granted in perpetuity and worldwide in nature;

 

4.12.6.4the rights licensed under each Licence Agreement will be enforceable by the Seller on and after the Closing to the same extent as prior to the Closing; and

 

4.12.6.5to the Knowledge of the Seller, no Person has infringed or misappropriated, or is infringing or misappropriating, any Intellectual Property Right of any licensor in or to any Licensed IP that form parts of the Purchased Intellectual Property of which it is the exclusive licensee.

 

4.12.7The Seller has entered into escrow agreements (including source code escrow agreements) or other arrangements as necessary to facilitate its continued use and exploitation of any Licensed IP that forms part of the Purchased Intellectual Property, the use and exploitation of which might be impaired in the event that the licensor of any of that Licensed IP ceases to carry on business, ceases to support or maintain that Licensed IP, or is involved in an insolvency, bankruptcy or similar proceeding.

 

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4.12.8The past, current and proposed conduct of the Business (including all use or other exploitation of the Licensed IP and other Purchased Intellectual Property) has not resulted in, and neither does nor will result in, any infringement, violation, misappropriation, or other conflict with any Intellectual Property Right of any Person, and there is no action or proceeding ongoing or threatened that alleges any such violation, misappropriation, or other conflict.

 

4.12.9There are no outstanding orders, judgments, rulings, decrees, stipulations, covenants not to sue, or agreements (including any funding or facilities agreements or grants from any college, university, or Governmental Authority) relating to any of the Licensed IP or other Purchased Intellectual Property that restrict enforcement of any Intellectual Property Rights included in such Purchased Intellectual Property, or the use, exercise, practise, or other exploitation of any such Purchased Intellectual Property by the Seller or any of its customers, distributors or other licensees.

 

4.12.10No Purchased Intellectual Property contains any open source code.

 

4.13Rights to Use Personal Information

 

4.13.1All Personal Information in the possession of the Seller that forms part of the Purchased Assets or relates to the Purchased Assets has been collected, used and disclosed in compliance with all applicable Privacy Laws in those jurisdictions in which the Seller conducts, or is deemed by operation of law in those jurisdictions to conduct, the Business.

 

4.13.2The Seller has disclosed to the Buyer all Contracts and facts concerning the collection, use, retention, destruction and disclosure of Personal Information, and there are no other Contracts, or facts which would restrict the ability of the Seller to transfer Personal Information to the Buyer in connection with the transactions contemplated by this Agreement, or which, on completion of the transactions contemplated by this Agreement, would restrict or interfere with the use of any Personal Information by the Buyer.

 

4.13.3There are no Claims pending or, to the Knowledge of the Seller, threatened, with respect to the Seller’s collection, use or disclosure of Personal Information that forms part of the Purchased Assets or relates to the Purchased Assets.

 

4.14Litigation

 

4.14.1There are no Claims, whether or not purportedly on behalf of the Seller, pending, commenced, or, to the Knowledge of the Seller, threatened, which might involve the possibility of an Encumbrance against the Purchased Assets.

 

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4.14.2There is no outstanding judgment, decree, order or ruling relating in any way to the transactions contemplated by this Agreement.

 

4.15No Expropriation

 

None of the Purchased Assets have been taken or expropriated by any Governmental Authority and no notice or proceeding in respect of any expropriation has been given or commenced or, to the Knowledge of the Seller, is there any intent or proposal to give any notice or commence any proceeding in respect of any expropriation.

 

4.16Disclosure

 

No representation or warranty or other statement made by the Seller in this Agreement contains any untrue statement or omits to state a material fact necessary to make it, in light of the circumstances in which it was made, not misleading.

 

Article 5
REPRESENTATIONS AND WARRANTIES OF the buyer

 

The Buyer represents and warrants to the Seller as follows, and acknowledges that the Seller is relying upon these representations and warranties in connection with the sale of the Purchased Assets, despite any investigation made by or on behalf of the Seller.

 

5.1Corporate Existence of Buyer

 

The Buyer is a corporation duly incorporated and validly existing under the laws of the State of Delaware.

 

5.2Capacity to Enter Agreement

 

The Buyer has all necessary corporate power, authority and capacity to enter into and perform its obligations under this Agreement.

 

5.3Binding Obligation

 

The execution and delivery of this Agreement and the completion of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Buyer. This Agreement has been duly executed and delivered by the Buyer and constitutes a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency and other Laws of general application limiting the enforcement of creditors’ rights generally and to the fact that equitable remedies, including specific performance, are discretionary and may not be ordered in respect of certain defaults.

 

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5.4Absence of Conflict

 

None of the execution and delivery of this Agreement, the performance of the Buyer’s obligations in this Agreement, or the completion of the transactions contemplated by this Agreement, will result in or constitute a breach of any term or provision of, or constitute a default under, the articles or by-laws of the Buyer or any agreement or other commitment to which the Buyer is a party.

 

5.5Investment Canada Act

 

The Buyer is not a Canadian within the meaning of the Investment Canada Act.

 

5.6Regulatory Approvals

 

No authorization, approval, order, consent of, or filing with, any Governmental Authority is required on the part of the Buyer in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be delivered under this Agreement.

 

5.7Litigation

 

There is no outstanding judgment, decree, order, ruling or injunction involving the Buyer that relates in any way to the transactions contemplated by this Agreement.

 

5.8GST/HST and QST

 

The Buyer is not registered for purposes of the GST/HST levied under the ETA, nor for purposes of the QST under the QSTA. The Buyer is a non-resident of Canada for the purposes of ETA.

 

5.9Post-closing Share Capital

 

Upon issuance of the 260,000,000 Buyer Common Shares pursuant to Section 3.1 and the 60,000,000 Buyer Common Shares pursuant to Section 10.3.1, the 176,875,000 Buyer Common Shares to be issued to, or as directed by, Winterberry pursuant to Section 3.1.1 will constitute 31.25% of the issued and outstanding Buyer Common Shares on a fully diluted basis.

 

Article 6
REPRESENTATIONS AND WARRANTIES OF WINTERBERRY

 

Winterberry represents and warrants to the Buyer, the Parent and the Seller as follows.

 

6.1Corporate Existence of Winterberry

 

Winterberry is a corporation duly incorporated and validly existing under the laws of the Province of Ontario.

 

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6.2Capacity to Enter Agreement

 

Winterberry has all necessary corporate power, authority and capacity to enter into and perform its obligations under this Agreement.

 

6.3Binding Obligation

 

The execution and delivery of this Agreement and the completion of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Winterberry. This Agreement has been duly executed and delivered by Winterberry and constitutes a valid and binding obligation of Winterberry, enforceable against Winterberry in accordance with its terms, subject to applicable bankruptcy, insolvency and other Laws of general application limiting the enforcement of creditors’ rights generally and to the fact that equitable remedies, including specific performance, are discretionary and may not be ordered in respect of certain defaults.

 

6.4Absence of Conflict

 

None of the execution and delivery of this Agreement, the performance of Winterberry’s obligations in this Agreement, or the completion of the transactions contemplated by this Agreement, will result in or constitute a breach of any term or provision of, or constitute a default under, the articles or by-laws of Winterberry or any agreement or other commitment to which Winterberry is a party.

 

6.5Regulatory Approvals

 

No authorization, approval, order, consent of, or filing with, any Governmental Authority is required on the part of Winterberry in connection with the execution, delivery and performance of this Agreement or any other documents and agreements to be delivered under this Agreement.

 

Article 7
COVENANTS

 

7.1Completion of Closing Date and Pre-Closing Date Transactions

 

7.1.1The Buyer will use commercially reasonable efforts to consolidate the Buyer Common Shares on a ten-to-one (10:1) basis before the Closing Time.

 

7.1.2The Parent will use commercially reasonable efforts to consolidate the common shares in its capital on a ten-to-one (10:1) basis before the Closing Time.

 

7.1.3The Buyer will use commercially reasonable efforts to file in the Province of Ontario a preliminary prospectus in respect of the Buyer Common Shares, resolve all comments received or deficiencies raised by the Ontario Securities Commission and file and obtain a receipt for a (final) prospectus before the Closing Time.

 

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7.1.4The Buyer will use commercially reasonable efforts to apply for a listing of the Buyer Common Shares on the TSX-V before the Closing Time.

 

7.1.5The Parent will assign the Parent Debt to the Seller before the Closing Time.

 

7.1.6The Parties will complete the Closing Date Transactions before the Closing Time.

 

7.2Conduct of Business Before Closing

 

During the period beginning on the date of this Agreement and ending at the Closing Time, the Seller will:

 

7.2.1conduct the Business diligently, prudently and in a manner that would not reasonably be expected to adversely affect the Purchased Assets;

 

7.2.2refrain from entering into any Contract which concerns the Purchased Assets, except in the ordinary course of the Business, or with the prior written consent of the Buyer;

 

7.2.3continue in full force the Insurance Policies;

 

7.2.4comply in all material respects with all Laws applicable to the Purchased Assets or the Business; and

 

7.2.5apply for, maintain in good standing and renew all Permits.

 

7.3Actions to Satisfy Closing Conditions

 

Each Party will take all actions that are within its power to control, and will make all commercially reasonable efforts to cause other actions to be taken which are not within its power to control, so as to ensure its compliance with, and satisfaction of, all conditions in Article 8 that are for the benefit of the other Party.

 

7.4Risk of Loss

 

All of the Purchased Assets will be and remain at the risk of the Seller until the Closing Time, and the Seller will continue in full force and effect all Insurance Policies and give all notices and present all Claims under all such Insurance Policies in due and timely fashion. If the Purchased Assets or any substantial part of them should be damaged or destroyed before the Closing Time, the Seller will promptly give notice of that damage or destruction (the “Damage Notice”) to the Buyer and the Buyer will have the option, exercisable by notice given within ten Business Days of receipt of the Damage Notice:

 

7.4.1to reduce the Purchase Price by an amount equal to the cost of repair or, if destroyed or damaged beyond repair, by an amount equal to the replacement cost of the assets forming part of the Purchased Assets so damaged or destroyed and to complete the purchase;

 

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7.4.2to complete the purchase without reduction of the Purchase Price, in which event all proceeds of Insurance Policies will be payable to the Buyer together with a sum equal to the deductible amount required to be paid under the applicable Insurance Policies, plus applicable Commodity Taxes and all right and claim of the Seller to any amounts not paid by the Closing Date will be assigned to the Buyer; or

 

7.4.3to terminate this Agreement and not complete the purchase if, in the reasonable opinion of the Buyer, the destruction or damage constitutes or gives rise to a Material Adverse Effect, in which event the Seller and the Buyer will be released from all obligations under this Agreement (except as set out in Article 9).

 

If the Seller gives the Damage Notice within ten Business Days before the Closing Date, the Closing Date will be postponed until ten Business Days after the giving of the Damage Notice, or such other later date as the Parties agree to in writing.

 

7.5Non-Competition and Non-Solicitation

 

7.5.1For the period comprising the greater of (i) five (5) years commencing on the Closing Date and (ii) such period of time during which the Parent directly or indirectly owns at least ten percent (10%) or more of the outstanding common shares of the Buyer (the “Restricted Period”), the Parent and Seller shall not, and shall not permit any of their Affiliates to, directly or indirectly: (i) engage in or assist others in engaging in the Restricted Business; (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in any capacity, including as a partner, shareholder, employee, principal, agent, trustee or consultant; or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after the date of this Agreement) between the Buyer and customers or suppliers of the Buyer.

 

7.5.2Notwithstanding the provisions of Section 7.5.1, nothing in this Agreement shall prohibit the Parent from owning the shares that it owns in Lexifone Communications Systems (2010) Ltd. (“Lexifone”) as at the Effective Date of this Agreement, provided that such ownership interest is not exercised in a manner that causes Lexifone to compete with the Restricted Business.

 

7.5.3During the Restricted Period, the Parent and Seller shall not, and shall not permit any of their Affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients or customers of the Buyer or potential clients or customers of the Buyer for purposes of diverting their business or services from the Buyer.

 

7.5.4The Parent and Seller acknowledge that the restrictions contained in this Section 7.5 are reasonable and necessary to protect the legitimate interests of Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement, and that a failure by the Parent or Seller to comply with such restrictions would cause irreparable harm to the Buyer. In the event that any covenant contained in this Section 7.5 should ever, in whole or in part, be adjudicated to be illegal, invalid, void, voidable or unenforceable in any jurisdiction by any court of competent jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service, or other limitations permitted by applicable Law.

 

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7.6Restricted Business Opportunities

 

For a period of five (5) years commencing on the Closing Date, each of the Parent and Seller will provide the Buyer will written notice of any Restricted Business Opportunity that comes to its attention, which notice will contain all information which is known to the Parent or Seller, as the case may be, that could reasonably be expected to impact a decision on the part of the Buyer regarding whether to pursue any such Restricted Business Opportunity.

 

7.7Allocation of Buyer Common Shares and Cash

 

Schedule 10.3.1 may be updated prior to the Closing Time as agreed to by the Seller and the Buyer, each acting reasonably, to change the: (i) allocation of the 60,000,000 Buyer Common Shares referenced therein; and (ii) amount of the cash payments referenced therein; provided, however, that any such updates may be made only for the purposes of adjusting the consideration to be paid by the Buyer pursuant to Section 10.3.1 upon the retirement of the Seller Debt to properly reflect the amount of principal and interest actually owing in respect of the Seller Debt as at the Closing Time.

 

Article 8
CLOSING CONDITIONS

 

8.1Conditions for the Benefit of the Buyer

 

The obligation of the Buyer to complete the purchase of the Purchased Assets will be subject to the fulfilment of the following conditions at or before the Closing Time:

 

8.1.1Representations, Warranties and Covenants. The representations and warranties of the Parent, the Seller and Winterberry made in this Agreement, and in any other agreement or document delivered pursuant to this Agreement, will be true and accurate at the Closing Time with the same force and effect as though those representations and warranties had been made as of the Closing Time. Each of the Parent, the Seller and Winterberry will have complied with all covenants and agreements to be performed or caused to be performed by it under this Agreement, and in any other agreement or document delivered pursuant to this Agreement, at or before the Closing Time. In addition, each of the Parent, the Seller and Winterberry will have delivered to the Buyer a certificate of a senior officer of the Parent, the Seller or Winterberry, as the case may be, confirming the same. The receipt of that certificate and the completion of the Closing will not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Parent, the Seller and Winterberry contained in this Agreement, or in any other agreement or document delivered pursuant to this Agreement. Those representations, warranties and covenants will continue in full force and effect as provided in Article 9, or, if Article 9 does not apply, the terms of the agreement or document in which they are made.

 

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8.1.2No Material Adverse Effect. The Business has been carried on in the ordinary course since March 31, 2015 and since the date of this Agreement there will not have been any event, development or condition of any character (whether or not covered by insurance) that has, or might reasonably be expected to have, a Material Adverse Effect.

 

8.1.3Consents. Each of the Parent, Seller and Winterberry will receive the approvals of their respective boards of directors (and shareholders, if appropriate), and in each case for the boards of directors consent, acknowledging that these are related parties and determining the fairness of the transaction contemplated hereby.

 

8.1.4Completion of Due Diligence. The Buyer will have completed legal and business due diligence to its satisfaction and will be satisfied with the results of such due diligence, in each case, as determined by the Buyer in its sole discretion.

 

8.1.5Share Consolidations. The Buyer and the Parent will each have completed the share consolidations referenced in Sections 7.1.1 and 7.1.2.

 

8.1.6Reporting Issuer Status. The Buyer will have used commercially reasonable efforts to file in the Province of Ontario a preliminary prospectus in respect of the Buyer Common Shares, resolve all comments received or deficiencies raised by the Ontario Securities Commission and file and obtain a receipt for a (final) prospectus. The Buyer will use commercially reasonable efforts to apply for a listing of the Buyer Common Shares on the TSX-V. The Parties acknowledge that the Buyer, as a United States reporting company pursuant to the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, must comply with United States public federal disclosure requirements, including any related party status, as determined in the rules and regulations promulgated by the Securities and Exchange Commission, where appropriate.

 

8.1.7Deliveries. The Parent, the Seller and Winterberry, as applicable, will have delivered to the Buyer the following in form and substance satisfactory to the Buyer:

 

8.1.7.1a general conveyance in a form to be agreed to by the Parties acting reasonably;

 

8.1.7.2all deeds, conveyances, assurances, transfers and assignments and any other instruments necessary or reasonably required to transfer the Purchased Assets to the Buyer with a good title, free and clear of all Encumbrances; and

 

8.1.7.3all documentation and other evidence reasonably requested by the Buyer in order to establish the due authorization and completion of the transactions contemplated by this Agreement, including the taking of all corporate proceedings by the board of directors and the shareholders of the Parent, the Seller and Winterberry, as applicable, required to effectively carry out the obligations of the Parent, the Seller and Winterberry pursuant to this Agreement.

 

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8.2Waiver or Termination by the Buyer

 

The conditions contained in Section 8.1 are inserted for the exclusive benefit of the Buyer and may be waived in whole or in part by the Buyer at any time without prejudice to any of its rights of termination in the event of non-performance of any other condition in whole or in part. If any of the conditions contained in Section 8.1 are not fulfilled or complied with by the time that is required under this Agreement, the Buyer may, at or before the Closing Time, terminate this Agreement by notice in writing after that time to the Parent, the Seller and Winterberry. In that event the Buyer, the Parent, the Seller and Winterberry will be released from all obligations under this Agreement.

 

8.3Conditions for the Benefit of the Parent and the Seller

 

The obligation of the Parent and the Seller to complete the sale of the Purchased Assets will be subject to the fulfilment of the following conditions at or before the Closing Time:

 

8.3.1Representations, Warranties and Covenants. The representations and warranties of the Buyer and Winterberry made in this Agreement, and in any other agreement or document delivered pursuant to this Agreement, will be true and accurate at the Closing Time with the same force and effect as though those representations and warranties had been made as of the Closing Time. Each of the Buyer and Winterberry will have complied with all covenants and agreements to be performed or caused to be performed by it under this Agreement, and in any other agreement or document delivered pursuant to this Agreement, at or before the Closing Time. In addition, each of the Buyer and Winterberry will have delivered to the Parent and the Seller a certificate of a senior officer of the Buyer or Winterberry, as the case may be, confirming the same. The receipt of that certificate and the completion of the Closing will not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Buyer or Winterberry contained in this Agreement, or in any other agreement or document delivered pursuant to this Agreement. Those representations, warranties and covenants will continue in full force and effect as provided in Article 9, or, if Article 9 does not apply, the terms of the agreement or document in which they are made.

 

8.3.2No Material Adverse Effect. Since the date of this Agreement there will not have been any event, development or condition of any character (whether or not covered by insurance) that has, or might reasonably be expected to become, individually or in the aggregate, materially adverse to the business, results of operations, condition or assets of the Buyer.

 

8.3.3Consents. Each of Winterberry and the Buyer will receive the approvals of their respective boards of directors (and shareholders, if appropriate), and in each case for the boards of directors consent, acknowledging that these are related parties and determining the fairness of the transaction contemplated hereby.

 

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8.3.4Share Consolidations. The Buyer and the Parent will each have completed the share consolidations referenced in Sections 7.1.1 and 7.1.2.

 

8.3.5Reporting Issuer Status. The Buyer will have used commercially reasonable efforts to file in the Province of Ontario a preliminary prospectus in respect of the Buyer Common Shares, resolve all comments received or deficiencies raised by the Ontario Securities Commission and file and obtain a receipt for a (final) prospectus. The Buyer will use commercially reasonable efforts to apply for a listing of the Buyer Common Shares on the TSX-V. The Parties acknowledge that the Buyer, as a United States reporting company pursuant to the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, must comply with United States public federal disclosure requirements, including any related party status, as determined in the rules and regulations promulgated by the Securities and Exchange Commission, where appropriate.

 

8.3.6Deliveries. The Buyer and Winterberry, as applicable, will have delivered to the Parent and the Seller the following in form and substance satisfactory to the Parent and the Seller:

 

8.3.6.1the Parent Debt Assumption Agreement;

 

8.3.6.2the Seller Debt Assumption Agreement;

 

8.3.6.3the Ortsbo Debt Assumption Agreement; and

 

8.3.6.4all documentation and other evidence reasonably requested by the Seller in order to establish the due authorization and completion of the transactions contemplated by this Agreement, including the taking of all corporate proceedings by the board of directors and the shareholders of the Buyer or Winterberry, as applicable, required to effectively carry out the obligations of the Buyer pursuant to this Agreement.

 

8.4Waiver or Termination by the Seller

 

The conditions contained in Section 8.3 are inserted for the exclusive benefit of the Parent and the Seller and may be waived in whole or in part jointly by the Parent and the Seller at any time without prejudice to its rights of termination in the event of non-performance of any other condition in whole or in part. If any of the conditions contained in Section 8.3 are not fulfilled or complied with by the time that is required under this Agreement, the Parent and the Seller may, at or before the Closing Time, terminate this Agreement by joint notice in writing after that time to the Buyer and Winterberry. In that event the Parent, the Seller, the Buyer and Winterberry will be released from all obligations under this Agreement.

 

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8.5Conditions for the Benefit of Winterberry

 

The obligation of Winterberry to complete the sale of the Purchased Assets will be subject to the fulfilment of the following conditions at or before the Closing Time:

 

8.5.1Representations, Warranties and Covenants. The representations and warranties of each of the Buyer, the Seller and the Parent made in this Agreement, and in any other agreement or document delivered pursuant to this Agreement, will be true and accurate at the Closing Time with the same force and effect as though those representations and warranties had been made as of the Closing Time. The Buyer, the Seller and the Parent will, as applicable, have complied with all covenants and agreements to be performed or caused to be performed by it under this Agreement, and in any other agreement or document delivered pursuant to this Agreement, at or before the Closing Time. In addition, the Buyer, the Seller and the Parent will have delivered to Winterberry a certificate of a senior officer of the Buyer, the Seller and the Parent , as applicable, confirming the same. The receipt of that certificate and the completion of the Closing will not be deemed to constitute a waiver of any of the representations, warranties or covenants of the Buyer, the Parent and the Seller contained in this Agreement, or in any other agreement or document delivered pursuant to this Agreement. Those representations, warranties and covenants will continue in full force and effect as provided in Article 9, or, if Article 9, does not apply, the terms of the agreement or document in which they are made.

 

8.5.2Share Consolidations. The Buyer and the Parent will each have completed the share consolidations referenced in Sections 7.1.1 and 7.1.2.

 

8.5.3Reporting Issuer Status. The Buyer will have used commercially reasonable efforts to file in the Province of Ontario a preliminary prospectus in respect of the Buyer Common Shares, resolve all comments received or deficiencies raised by the Ontario Securities Commission and file and obtain a receipt for a (final) prospectus. The Buyer will use commercially reasonable efforts to apply for a listing of the Buyer Common Shares on the TSX-V. The Parties acknowledge that the Buyer, as a United States reporting company pursuant to the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended, must comply with United States public federal disclosure requirements, including any related party status, as determined in the rules and regulations promulgated by the Securities and Exchange Commission, where appropriate.

 

8.5.4Deliveries. The Parent, the Seller and the Buyer, as applicable will have delivered to Winterberry the following in form and substance satisfactory to Winterberry:

 

8.5.4.1All documentation and other evidence reasonably requested by the Winterberry in order to establish the due authorization and completion of the transactions contemplated by this Agreement, including the taking of all corporate proceedings by the board of directors and the shareholders of Parent and the Seller, as applicable, required to effectively carry out the obligations of the Parent, the Seller, as applicable, and the Buyer pursuant to this Agreement.

 

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8.6Waiver or Termination by Winterberry

 

The conditions contained in Section 8.5 are inserted for the exclusive benefit of Winterberry and may be waived in whole or in part by Winterberry at any time without prejudice to its rights of termination in the event of non-performance of any other condition in whole or in part. If any of the conditions contained in Section 8.5 are not fulfilled or complied with by the time that is required under this Agreement, Winterberry may, at or before the Closing Time, terminate this Agreement by joint notice in writing after that time to the Buyer, the Seller and the Parent. In that event the Parent, the Seller and the Buyer will be released from all obligations under this Agreement.

 

8.7Conditions Precedent—No Action to Restrain

 

The purchase and sale of the Purchased Assets is subject to the conditions that no order of any Governmental Authority will be in force, and no action or proceeding will be pending or threatened by any Person:

 

8.7.1to restrain or prohibit the completion of the transactions contemplated by this Agreement, including the sale and purchase of the Purchased Assets; or

 

8.7.2which would have a Material Adverse Effect.

 

These conditions are true conditions precedent to the completion of the transactions contemplated by this Agreement. If they have not been fulfilled at or before the Closing Time, this Agreement will be terminated and the Parties will be released from all obligations under this Agreement.

 

Article 9
SURVIVAL AND INDEMNIFICATION

 

9.1Survival of Covenants and Representations and Warranties

 

All of the covenants and representations and warranties contained in this Agreement and in any other agreement or document delivered pursuant to this Agreement, including this Article 9, will survive the Closing.

 

9.2Parent and Seller Indemnification for Breach of Warranty, etc.

 

Subject to the remaining provisions of this Article 9, each of the Parent and the Seller agrees that if it fails to observe or perform any covenant or obligation, or breaches any representation and warranty, contained in this Agreement, or in any other agreement or document delivered pursuant to this Agreement, it will jointly and severally indemnify and hold harmless the Buyer and each director, officer, shareholder, agent or employee of the Buyer from and against the full amount of any Loss that each may suffer as a result of that failure. Each of the Parent and the Seller also agrees to jointly and severally indemnify and hold harmless the Buyer and each director, officer, shareholder, agent or employee of the Buyer from and against the full amount of any Loss that each may suffer as a result of a Third Party Claim, even if that Third Party Claim is ultimately found not to be meritorious, or is settled with no verdict on its merits being reached.

 

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9.3Buyer’s Indemnifications for Breaches of Warranty, etc.

 

Subject to the remaining provisions of this Article 9, the Buyer agrees that if it fails to observe or perform any covenant or obligation, or breaches any representation and warranty, contained in this Agreement, or in any other agreement or document delivered pursuant to this Agreement, it will indemnify and hold harmless each of the Parent, the Seller and each director, officer, shareholder, agent or employee of the Parent and the Seller from and against the full amount of any Loss that each may suffer as a result of that failure. The Buyer also agrees to indemnify and hold harmless the Parent, the Seller and each director, officer, shareholder, agent or employee of the Parent or the Seller from and against the full amount of any Loss that each may suffer as a result of a Third Party Claim, even if that Third Party Claim is ultimately found not to be meritorious, or is settled with no verdict on its merits being reached.

 

9.4Limitation on Mutual Indemnification

 

The indemnification obligations of each of the Parent, the Seller and the Buyer pursuant to Article 9 are limited to the sum of $1,250,000 in the aggregate, except if the Loss results from a breach by the Parent or the Seller of any of Sections 4.1, 4.2, 4.3, 4.4, 4.6, 4.11 and 4.12 in which cases the indemnification obligations of the Parent and the Seller will be limited to the Purchase Price.

 

9.5Additional Indemnities of the Parent and the Seller

 

The Parent and the Seller will jointly and severally indemnify and hold harmless the Buyer and each director, officer, shareholder, agent or employee of the Buyer from and against any Loss that each may suffer resulting from:

 

9.5.1Claims that may be made or brought against the Buyer or any director, officer, shareholder, agent or employee of the Buyer:

 

9.5.1.1related to or arising from liabilities incurred before the Closing that are not Future Obligations or related to the Parent Debt, the Seller Debt or the Ortsbo Debt; or

 

9.5.1.2by reason of the non-compliance of the Seller with applicable provincial bulk sales or transfer in bulk Laws in connection with the completion of the transactions contemplated in this Agreement; or

 

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9.5.2the termination of this Agreement under the terms of Section  8.2, if the Loss arises from the non-fulfilment or non-performance of the relevant conditions as a result of a breach of covenant, or representation and warranty, of the Seller,

 

provided that the Seller’s indemnification obligations under this Section 9.5 will be limited to the Purchase Price.

 

9.6Additional Buyer’s Indemnities

 

The Buyer will indemnify and hold harmless each of the Parent and the Seller and each director, officer, shareholder, agent or employee of the Parent and the Seller from and against any Loss that each may suffer resulting from:

 

9.6.1Claims that may be made or brought against the Parent or the Seller or any director, officer, shareholder, agent or employee of the Parent or the Seller relating to or arising out of the non-payment or performance after the Closing Date by the Buyer of:

 

9.6.1.1the Parent Debt, the Seller Debt or the Ortsbo Debt; or

 

9.6.1.2Future Obligations; and

 

9.6.2the termination of this Agreement under the terms of Section 8.4, if the Loss arises from the non-fulfilment or non-performance of the relevant conditions as a result of a breach of covenant, or representation and warranty, of the Buyer,

 

provided that the Buyer’s indemnification obligations under: (i) Section 9.6.1.1 will be limited to the sum of $4,000,000; (ii) Section 9.6.1.2 will be unlimited; and (iii) Section 9.6.2 will be limited to the sum of $1,250,000.

 

9.7Notice of Claim

 

If an Indemnified Party becomes aware of a Loss or potential Loss in respect of which the Indemnifying Party has agreed to indemnify it under this Agreement, the Indemnified Party will promptly give written notice (an “Indemnity Notice”) of its Claim or potential Claim for indemnification (an “Indemnity Claim”) to the Indemnifying Party. An Indemnity Notice must specify whether the Indemnity Claim arises as the result of a Claim made against an Indemnified Party by a Person who is not a Party (a “Third Party Claim”) or as a result of a Loss that was suffered directly by an Indemnified Party, and must also specify with reasonable particularity (to the extent that the information is available)

 

9.7.1the factual basis for the Indemnity Claim; and

 

9.7.2the amount of the Indemnity Claim, if known.

 

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If, through the fault of the Indemnified Party, the Indemnifying Party does not receive an Indemnity Notice of an Indemnity Claim in time to effectively contest the determination of any liability capable of being contested, the Indemnifying Party will be entitled to set off against the amount claimed by the Indemnified Party the amount of any Loss incurred by the Indemnifying Party resulting from the Indemnified Party’s failure to give an Indemnity Notice on a timely basis.

 

9.8Time Limits for Notice

 

9.8.1Subject to the remaining provisions of this Section 9.8, no Indemnity Claim may be made under Sections 9.2, 9.3, 9.5 or 9.6, unless an Indemnity Notice of that Indemnity Claim is delivered to the Indemnifying Party within three years after the Closing Date.

 

9.8.2No Indemnity Claim may be made with respect to the breach of the representations and warranties of the Parent and the Seller contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 and 4.12 unless an Indemnity Notice of that Indemnity Claim is delivered to the Parent or the Seller within five years after the Closing Date.

 

9.8.3No Indemnity Claim may be made with respect to the breach of the representations and warranties of the Parent and the Seller contained in Section 11.1 unless an Indemnity Notice of that Indemnity Claim is delivered to the Parent or the Seller within 90 days of the date on which the reassessment period for the taxation year which gave rise to the Indemnity Claim expires.

 

9.8.4An Indemnity Notice of a Third Party Claim may be delivered to the Indemnifying Party in accordance with Section 9.7 at any time that the Third Party Claim arises.

 

9.8.5An Indemnity Notice of an Indemnity Claim may be delivered to the Indemnifying Party in accordance with Section 9.7 at any time if it relates to fraud or deliberate misconduct of the Indemnifying Party, or if the Indemnity Claim is made with respect to the indemnification obligations of the Seller set out in Section 9.5.1.2.

 

9.9Exclusive Remedy

 

9.9.1The rights of indemnity in this Article 9 are the sole and exclusive remedy through which an Indemnified Party may make any Claim for any loss, liability, damage, cost, expense, charge, fine, penalty or assessment including the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise and all interest, punitive damages, fines, penalties and professional fees and disbursements, suffered or incurred in connection with the transactions contemplated by this Agreement or by any agreement or other document delivered pursuant to this Agreement including any such Claim arising from alleged fraud or wilful misconduct.

 

9.9.2This Section 9.9 will remain in full force and effect in all circumstances and will not be terminated by any breach (fundamental, negligent or otherwise) by any Party of its covenants, representations or warranties in this Agreement or under any agreement or other document delivered pursuant to this Agreement, or by any termination or rescission of this Agreement.

 

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9.10Third Party Indemnification

 

To ensure that the indemnities provided by each of the Parent, the Seller and the Buyer to the other’s directors, officers and employees under this Agreement are enforceable, it is agreed by the Parties that each of the Parent, the Seller and the Buyer is acting as agent for its respective directors, officers and employees with respect to the indemnities intended to be given to those directors, officers and employees under this Article 9. Each of the Parent, the Seller and the Buyer agrees that it will hold any right to indemnification that any director, officer, shareholder, agent or employee of it is intended to have under this Article in trust for that director, officer, shareholder, agent or employee, and that funds received by the Parent, the Seller or the Buyer in respect of any Claims under this Article by any director, officer, shareholder, agent or employee of it will be held in trust for that director, officer, shareholder, agent or employee.

 

Article 10
CLOSING ARRANGEMENTS

 

10.1Closing

 

The Closing will take place at the Closing Time on the Closing Date at the offices of Gowling Lafleur Henderson LLP, located at 100 King Street West, Suite 1600, Toronto, Ontario M5X 1G5, or at any other place as the Parties may agree.

 

10.2Closing Procedures

 

At the Closing Time:

 

10.2.1the Seller will sell and the Buyer will purchase the Purchased Assets for the Purchase Price as provided in this Agreement;

 

10.2.2each Party will deliver or cause to be delivered to the other Parties, as applicable, all documents referred to in Sections 8.1.7, 8.3.6 and 8.5.4;

 

10.2.3the Seller will deliver or cause to be delivered to the Buyer the Purchased Assets accompanied by certified copies of directors’ and shareholders’ (if applicable) resolutions authorizing the sale and transfer of the Purchased Assets;

 

10.2.4the Buyer will issue the Buyer Common Shares as set out in Section 3.1.1;

 

10.2.5the Buyer will assume the Parent Debt, the Seller Debt and the Ortsbo Debt as set out in Sections 3.1.2 , 3.1.3 and 3.1.4; and

 

10.2.6Winterberry and the Seller will cause to be delivered to the Buyer and the Parent the Winterberry Agreement.

 

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10.3Other Closing Date Transactions

 

10.3.1Immediately following the Closing Time, the Buyer shall retire the Seller Debt and the Seller Debtholders shall receive 60,000,000 Buyer Common Shares from the Seller, at a price of $0.05 per Buyer Common Share, and/or cash, in full satisfaction of the Seller Debt, as set out in more detail in Schedule 10.3.1.

 

10.3.2Immediately following the Closing Time, the Buyer shall retire the Parent Debt and Winterberry shall use the proceeds to acquire an equivalent amount of Buyer Debentures.

 

10.3.3Immediately following the Closing Time, the Buyer shall retire the Ortsbo Debt and the holders of the Ortsbo Debt shall use the proceeds to acquire an equivalent amount of Buyer Debentures.

 

Article 11
GENERAL

 

11.1Investment Canada Act Reporting

 

On or before the date that is thirty (30) days after the Closing Date, the Buyer will report the transactions contemplated hereunder to Industry Canada on the prescribed forms and in accordance with the requirements under the Investment Canada Act.

 

11.2Time of Essence

 

Time is of the essence in all respects of this Agreement.

 

11.3Notices

 

Any Communication must be in writing and either:

 

11.3.1delivered personally or by courier;

 

11.3.2sent by prepaid registered mail; or

 

11.3.3transmission, charges (if any) prepaid.

 

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Any Communication must be sent to the intended recipient at its address as follows:

 

to the Parent at:

 

Intertainment Media Inc.
80 Tiverton Court, Suite 100 

  Markham, Ontario
  L3R 0G4
   
  Attention: Girvan Patterson, Corporate Secretary
  Tel No.: 905-763-3510
  Facsimile No.: 905-763-6175
     
  with a copy to:
     
  DLA Piper (Canada) LLP
  100, 250-2nd Street SW
  Calgary, Alberta
  T2P 0C1
     
  Attention: Marek Lorenc
  Tel No.: 403.776.8816
  E-mail: marek.lorenc@dlapiper.com
     
  to the Seller at:
   
  Ortsbo Inc.
  80 Tiverton Court, Suite 100
  Markham, Ontario
  L3R 0G4
     
  Attention: Herb Willer, Director
  Tel No.: 905-763-3510
  Facsimile No.: 905-763-6175
     
  with a copy to:
   
  DLA Piper (Canada) LLP
  100, 250-2nd Street SW
  Calgary, Alberta
  T2P 0C1
     
  Attention: Marek Lorenc
  Tel No.: 403.776.8816
  E-mail: marek.lorenc@dlapiper.com
     
  to the Buyer at:
   
  Yappn Corp.
  1001 Avenue of the Americas, 11th Floor
  New York, New York, USA
  10018
     
  Attention: Neil Stiles, Director
  E-mail: neilstiles@gmail.com

 

- 36 -
 

 

  with a copy to:
   
  Gowling Lafleur Henderson LLP
  1 First Canadian Place
  100 King St W., Suite 1600
  Toronto, Ontario
  M5X 1G5
     
  Attention: Peter Simeon
  Tel No.: 416-862-4448
  Facsimile No.: 416-862-7661
  E-mail: peter.simeon@gowlings.com
     
  to Winterberry at:
   
  Winterberry Investments Inc.
  124 Park Road
  Toronto, Ontario
  M4W 2N7
     
  Attention: David Berry, President
  Tel No.: 416.500.9080
  Email: davidmmberry@rogers.com
     
  with a copy to:
   
  Chitiz Pathak LLP
  320 Bay Street
  Suite 1600
  Toronto, Ontario
  M5G 4A6
     
  Attention: Paul Pathak
  Tel No.: 416.644.9964
  Facsimile No.: 416.368.0300
  E-mail: ppathak@chitizpathak.com  

  

or at any other address as any Party may at any time advise the other by Communication given or made in accordance with this Section 11.3. Any Communication delivered to the Party to whom it is addressed will be deemed to have been given or made and received on the day it is delivered at that Party’s address, provided that if that day is not a Business Day then the Communication will be deemed to have been given or made and received on the next Business Day. Any Communication sent by prepaid registered mail will be deemed to have been given or made and received on the fifth Business Day after which it is mailed. If a strike or lockout of postal employees is then in effect, or generally known to be impending, every Communication must be delivered personally or by courier or transmitted by facsimile, e-mail or functionally equivalent electronic means of transmission. Any Communication transmitted by facsimile, e-mail or other functionally equivalent electronic means of transmission will be deemed to have been given or made and received on the day on which it is transmitted; but if the Communication is transmitted on a day which is not a Business Day or after 5:00 p.m. (local time of the recipient), the Communication will be deemed to have been given or made and received on the next Business Day.

 

- 37 -
 

 

11.4Severability

 

Each Section of this Agreement is distinct and severable. If any Section of this Agreement, in whole or in part, is or becomes illegal, invalid, void, voidable or unenforceable in any jurisdiction by any court of competent jurisdiction, the illegality, invalidity or unenforceability of that Section, in whole or in part, will not affect:

 

11.4.1the legality, validity or enforceability of the remaining Sections of this Agreement, in whole or in part; or

 

11.4.2the legality, validity or enforceability of that Section, in whole or in part, in any other jurisdiction.

 

11.5Submission to Jurisdiction

 

Each of the Parties irrevocably and unconditionally submits and attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario to determine all issues, whether at law or in equity arising from this Agreement. To the extent permitted by applicable Law, each of the Parties:

 

11.5.1irrevocably waives any objection, including any Claim of inconvenient forum, that it may now or in the future have to the venue of any legal proceeding arising out of or relating to this Agreement in the courts of that Province, or that the subject matter of this Agreement may not be enforced in those courts;

 

11.5.2irrevocably agrees not to seek, and waives any right to, judicial review by any court which may be called upon to enforce the judgment of the courts referred to in this Section 11.5, of the substantive merits of any suit, action or proceeding; and

 

11.5.3to the extent a Party has or may acquire any immunity from the jurisdiction of any court or from any legal process, whether through service or notice, attachment before judgment, attachment in aid of execution, execution or otherwise, with respect to itself or its property, that Party irrevocably waives that immunity in respect of its obligations under this Agreement.

 

- 38 -
 

 

11.6Amendment and Waiver

 

No amendment, discharge, modification, restatement, supplement, termination or waiver of this Agreement or any Section of this Agreement is binding unless it is in writing and executed by the Party to be bound. No waiver of, failure to exercise or delay in exercising, any Section of this Agreement constitutes a waiver of any other Section (whether or not similar) nor does any waiver constitute a continuing waiver unless otherwise expressly provided.

 

11.7Further Assurances

 

Each Party will, at the requesting Party’s cost and expense, execute and deliver any further agreements and documents and provide any further assurances, undertakings and information as may be reasonably required by the requesting Party to give effect to this Agreement and, without limiting the generality of this Section 11.7, will do or cause to be done all acts and things, execute and deliver or cause to be executed and delivered all agreements and documents and provide any assurances, undertakings and information as may be required at any time by all Governmental Authorities or stock exchanges having jurisdiction over the Buyer’s affairs, or as may be required at any time under applicable securities Laws.

 

11.8Assignment and Enurement

 

Neither this Agreement nor any right or obligation under this Agreement may be assigned by either Party without the prior written consent of the other Party. This Agreement enures to the benefit of and is binding upon the Parties and their respective successors and permitted assigns.

 

11.9Counterparts and Electronic Delivery

 

This Agreement may be executed and delivered by the Parties in one or more counterparts, each of which will be an original, and each of which may be delivered by facsimile, e-mail or other functionally equivalent electronic means of transmission, and those counterparts will together constitute one and the same instrument.

 

11.10No Broker

 

Each Party represents and warrants to the other Party that all negotiations relating to this Agreement and the transactions contemplated by this Agreement have been carried on between them directly, without the intervention of any other Person on behalf of any Party in such manner as to give rise to any valid Claim against the Buyer for a brokerage commission, finder’s fee or other similar payment.

 

11.11Payment and Currency

 

Any money to be advanced, paid or tendered by one Party to another under this Agreement must be advanced, paid or tendered by bank draft, certified cheque or wire transfer of immediately available funds payable to the Person to whom the amount is due. Unless otherwise specified, the word “dollar” and the “$” sign refer to United States currency, and all amounts to be advanced, paid, tendered or calculated under this Agreement are to be advanced, paid, tendered or calculated in United States currency.

 

- 39 -
 

 

11.12Vienna Convention

 

The United Nations Convention on Contracts for the International Sale of Goods (also called the Vienna Convention which is cited in the statutes of Canada as the International Sale of Goods Contracts Convention Act) will not be applicable to this Agreement or the transactions contemplated by this Agreement.

 

11.13No Contra Proferentem

 

This Agreement has been reviewed by each Party’s professional advisors, and revised during the course of negotiations between the Parties. Each Party acknowledges that this Agreement is the product of their joint efforts, that it expresses their agreement, and that, if there is any ambiguity in any of its provisions, that provision should not be interpreted in favour of either one of them.

 

11.14Acknowledgement

 

Each Party acknowledges that:

 

11.14.1it has received independent legal advice from its own lawyers with respect to the terms of this Agreement before its execution;

 

11.14.2it has read this Agreement, understands it, and agrees to be bound by its terms and conditions; and

 

11.14.3it has received a copy of this Agreement.

 

11.15Language

 

The Parties have expressly required that this Agreement, any Communication and all other contracts, documents and notices relating to this Agreement be drafted in the English language. Les parties ont expressément exigé que la présente convention, la communication et tous les autres contrats, documents et avis qui y sont afférents soient rédigés dans la langue anglaise.

 

11.16Expenses

 

All reasonable fees, expenses and disbursements incurred by Winterberry in relation to the transactions contemplated herein shall be paid by the Buyer, up to a maximum amount of CDN$85,000 (exclusive of Taxes and expenses), unless the Buyer consents in writing to a greater amount. Winterberry acknowledges and confirms that any amount in respect of such fees, expenses and disbursements owing as of the date of this Agreement have been paid by the Buyer and received by Winterberry, and the Buyer agrees to pay any such additional fees, expenses or disbursements on the Closing Date. Other than the foregoing, each Party shall be responsible for and bear its own fees, costs and expenses incurred at any time in connection with the preparation of this Agreement or pursuing or completing the transactions contemplated herein.

 

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

 

- 40 -
 

 

Each of the Parties has executed and delivered this Agreement as of the date noted at the beginning of the Agreement.

 

  INTERTAINMENT MEDIA INC.
   
  By:
    Name:
    Title:
     
  ORTSBO INC.
     
  By:
    Name:
    Title:
     
  YAPPN CORP.
     
  By:
    Name:
    Title:
     
  WINTERBERRY INVESTMENTS INC.
     
  By:
  Name:
    Title:

- 41 -
 

 

SCHEDULE 1.1.13
CLOSING DATE TRANSACTIONS

 

 

- 42 -
 

 

SCHEDULE 1.1.56
PATENTS AND APPLICATIONS

 

 

- 43 -
 

 

SCHEDULE 1.1.65
SELLER DEBTHOLDERS

 

 

- 44 -
 

 

SCHEDULE 10.3.1
ALLOCATION OF CONSIDERATION TO SELLER DEBTHOLDERS

 

 

 

- 45 -

 

 



Exhibit 10.1

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR PROVINCE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY CANADIAN NATIONAL OR PROVINCIAL SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR ANY CANADIAN NATIONAL OR PROVINCIAL SECURITIES LAW OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY CANADIAN NATIONAL OR PROVINCIAL SECURITIES LAW AND IN ACCORDANCE WITH APPLICABLE STATE OR PROVINCIAL SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE LATER OF (I) JULY 15, 2015, AND (II) THE DATE THE ISSUER BECAME A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY.

 

Date of Issuance: July 15, 2015

 

$n

 

YAPPN CORP.

12% SECURED DEBENTURE

DUE DECEMBER 31, 2015

 

THIS DEBENTURE is a duly authorized and issued 12% Secured Debenture of Yappn Corp., a Delaware corporation, having a principal place of business at 1001 Avenue of the Americas, 11th Floor, New York, NY 10018 (the "Company"), designated as its 12% Secured Debenture, due December 31, 2015 (the "Debenture").

 

FOR VALUE RECEIVED, the Company promises to pay to n or his registered assigns (the "Holder"), the principal sum of n Dollars ($n) on December 31, 2015 or such earlier date as the Debenture is required or permitted to be repaid as provided hereunder (the "Maturity Date"), and to pay interest to the Holder on the aggregate outstanding principal amount of this Debenture at the rate of 12% per annum, payable on the Maturity Date (except that, if any such date is not a Business Day, then such payment shall be due on the next succeeding Business Day).

 

This Debenture is derived from a Subscription Agreement between the Holder and the Company (the “Subscription Agreement”) dated July _____, 2015 and incorporates the terms and conditions contained in the Subscription Agreement by reference. The lead Debenture Holder shall be Winterberry Investments Inc. (“Winterberry” or the “Lead Debenture Holder”), including with respect to the covenants of the Company, default by the Company and the remedies of the Holder. The Debentures shall, however, rank equally with one another.

 

 
 

 

Prior to December 31, 2015, the Debentures and all accrued interest shall become immediately due and payable upon written notice being provided by Winterberry to the Company in any of the following circumstances:

 

(i)at any time after September 15, 2015, if any of the following have not been completed on or before September 15, 2015:

 

(a)the Closing, as defined in an Asset Purchase Agreement dated July 6, 2015 entered into among the Company, Intertainment Media Inc. (“Intertainment”), Ortsbo Inc. and Winterberry (the “Definitive Agreement”);
   
(b)a consolidation of the outstanding common shares of the Company on a 1 for 10 basis; or
   
(c)a consolidation of the outstanding common shares of Intertainment on a 1 for 10 basis; or

 

(ii)upon completion of an equity financing by the Company of an aggregate minimum amount of $10 million.

 

THE COMPANY MAY PREPAY ANY PORTION OF THE PRINCIPAL AMOUNT OF THIS DEBENTURE TOGETHGER WITH ALL ACCRUED INTEREST WITHOUT THE PRIOR WRITTEN CONSENT OF THE HOLDER.

 

This Debenture is subject to the following additional provisions:

 

Section 1. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same, subject to regulatory requirements. No service charge will be made for such registration of transfer or exchange.

 

Section 2. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Subscription Agreement. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Any payment hereunder will be paid to the Holder in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”). Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Holder in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

2
 

 

Section 3. Events of Default.

 

(a) "Event of Default", wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

i) any default in the payment of the principal of, interest (including Late Fees) on, or liquidated damages in respect of, any Debentures, free of any claim of subordination, as and when the same shall become due and payable which default is not cured, if possible to cure, within 10 days of notice of such default sent by the Lead Debenture Holder;

 

ii) the Company or any of its subsidiaries shall commence, or there shall be commenced against the Company or any such subsidiary a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any subsidiary thereof or there is commenced against the Company or any subsidiary thereof any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or the Company or any subsidiary thereof is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Company or any subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Company or any subsidiary thereof makes a general assignment for the benefit of creditors; or the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Company or any subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Company or any subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Company or any subsidiary thereof for the purpose of effecting any of the foregoing;

 

iii) the Company breaches any covenant in the Subscription Agreement or hereunder, which breach is not cured, if possible to cure, within 10 days of notice of such breach sent by the Lead Debenture Holder.

 

(b) If any Event of Default occurs and is continuing, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become at the Holder's election, immediately due and payable in cash.

 

Section 4. Negative Covenants.

 

This Debenture contains the following covenants of the Company satisfactory to Winterberry:

 

(a) that the Company will not, and will not permit any of its subsidiaries to, directly or indirectly, issue, incur, guarantee, assume, become liable, contingently or otherwise, with respect to or otherwise become responsible for the payment of any indebtedness except in the ordinary course of business;

 

3
 

 

(b) the Company will not, and will not permit any of its subsidiaries to, make payment of any dividend or other distribution in respect of such corporation’s capital stock, purchase, redeem, or otherwise acquire or retire for value any capital stock, option, warrant, or any other right to acquire shares of capital stock of such corporation, make any principal payment on, or purchase, repurchase, redeem or otherwise acquire retire for value prior to any scheduled maturity or scheduled repayment of any indebtedness which is subordinated in right of payment to the Debentures;

 

(c) that the Company will not, and will not permit any of its subsidiaries to, sell any asset of such corporation except on conditions acceptable to Winterberry or except in the ordinary course of business;

 

(d) that the Company will not, and will not permit any of its subsidiaries to, create, incur, assume or suffer to exist any liens upon any of their respective properties securing any indebtedness of the Company or the subsidiaries unless such indebtedness is expressly subordinated to the Debentures;

 

(e) that the Company will not amalgamate, consolidate or merge with any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof ("Person") or convey, transfer or lease all or substantially all of its assets to any Person, except on conditions acceptable to Winterberry or in the ordinary course of business;

 

(f) that the Company will not, and will not permit any of subsidiaries to, enter into any sale/leaseback transaction except on conditions acceptable to Winterberry;

 

(g) that the Company will not, and will not permit any of subsidiaries to, issue any securities in the capital stock of such corporation, except pursuant to currently outstanding rights to convert and warrants, the issuance of incentive stock options or Shares upon exercise of such options, issued in accordance with the Company’s stock option plan or securities issued for the purpose of payment of the principal amount of the Debentures.

 

Section 5. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Subscription Agreement, and (b) the following terms shall have the following meanings:

 

"Business Day" means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

 

4
 

 

"Common Stock" means the common stock, $.0001 par value per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.

 

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Original Issue Date" shall mean the date of the first issuance of the Debentures regardless of the number of transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

 

Section 6. The Debentures shall be secured and supported by a first security interest in all of the assets and undertakings of the Company and its subsidiaries.

 

Section 7. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, interest and liquidated damages (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein. As long as this Debenture is outstanding, the Company shall not and shall cause it subsidiaries not to, without the consent of the Holder, amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder.

 

Section 8. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

 

Section 9. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or email address or address of the Holder appearing on the books of the Company, or if no such facsimile number or email attachment or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Subscription Agreement.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (iii) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

5
 

 

Section 10. Except as expressly set forth in any security agreement securing the obligations under this Debenture, all questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof and each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transaction contemplated herein (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

Section 11. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver must be in writing.

 

6
 

 

Section 12. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Debentures as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

IN WITNESS WHEREOF, the Company has caused this 12% Secured Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

  YAPPN CORP.
     
  By:
  Name: David Lucatch
  Title: Chief Executive Officer

 

 

7

 

 



Exhibit 10.2

 

SECURITY AGREEMENT

 

THIS AGREEMENT is made as of July____, 2015,

 

BETWEEN

 

YAPPN CORP., a corporation incorporated under the laws of Delaware

 

(the “Borrower”),

 

- and -

 

YAPPN ACQUISITION SUB INC., a corporation incorporated under the laws of Delaware;

 

YAPPN CANADA INC., a corporation incorporated under the laws of Ontario;

 

FOTOYAP INC., a corporation incorporated under the laws of Delaware;

 

LANGULAS INC., a corporation incorporated under the laws of Florida;

 

YADMARK INC., a corporation incorporated under the laws of Florida;

 

YAFFILIATE MARKETING SERVICES INC., a corporation incorporated under the laws of Florida;

 

(each a “Guarantor”)

 

- and -

 

WINTERBERRY INVESTMENTS INC., a corporation formed under the laws of Ontario

 

(the “Collateral Agent”)

 

WHEREAS the Borrower has offered debentures (the “Debentures”) pursuant to the terms and conditions of a subscription agreement dated July ___, 2015 (the “Subscription Agreement”);

 

AND WHEREAS the Borrower has agreed to grant a general and continuing security interest over all of its assets for the payment and performance of its obligations under the Subscription Agreement and Debentures (the “Secured Obligations” as hereinafter further defined);

 

 
 

 

AND WHEREAS each Guarantor has agreed to unconditionally guarantee the Secured Obligations (the Borrower and the Guarantors are each a “Grantor” and together the “Grantors”) as further set out in this Agreement;

 

AND WHEREAS the Grantors have agreed to grant general and continuing security interests over all of their assets in favor of the Collateral Agent, in its capacity as lead investor and collateral agent pursuant to the Subscription Agreement and the Debentures, as pledgee, assignee and secured party;

 

AND WHEREAS the Borrower and each Guarantor will receive substantial direct and indirect benefits from the execution, delivery and performance of the obligations under the Subscription Agreement and Debentures and each is, therefore, willing to enter into this Agreement;

 

AND WHEREAS it is a condition to the payment of the amounts made by each holder of a Debenture (collectively the “Holders”) under the Debentures that each Grantor execute and deliver this Agreement;

 

AND WHEREAS this Agreement is given by each Grantor in favor of the Collateral Agent for the ratable benefit of the Holders to secure the payment and performance of all of the Secured Obligations;

 

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor and the Collateral Agent hereby agree as follows:

 

Article 1
interpretation

 

1.1Definitions

 

(1)          Unless otherwise defined herein or in the Subscription Agreement, capitalized terms used in this Agreement that are defined in the UCC shall have the meanings assigned to them in the UCC. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.

 

(2)          The following terms shall have the following meanings:

 

“Agreement” has the meaning set forth in the recitals above.

 

“Business Day” means a day other than a Saturday, Sunday or statutory holiday in the Province of Ontario.

 

“Claims” means any and all property and other taxes, assessments and special assessments, levies, fees and all governmental charges imposed upon or assessed against, and landlords', carriers', mechanics', workmen's, repairmen's, laborers', materialmen's, suppliers' and warehousemen's Liens and other claims arising by operation of law against, all or any portion of the Pledged Collateral.

 

2
 

 

“Collateral Support” means all Property assigned, hypothecated or otherwise securing any Pledged Collateral and shall include any security agreement or other agreement granting a Lien or security interest in such Property.

 

“Contracts” means, collectively, with respect to each Grantor, the Intellectual Property Licenses, all sale, service, performance, equipment or property lease contracts, agreements and grants and all other contracts, agreements or grants (in each case, whether written or oral, or third party or intercompany), between such Grantor and any third party, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof.

 

“Copyrights” means, collectively, with respect to each Grantor, all copyrights (whether statutory or common law, whether established or registered in the United States, Canada or any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished), all tangible embodiments of the foregoing and all copyright registrations and applications made by such Grantor, in each case, whether now owned or hereafter created or acquired by or assigned to such Grantor, together with any and all (i) rights and privileges arising under applicable law and international treaties and conventions with respect to such Grantor's use of such copyrights, (ii) reissues, renewals, continuations and extensions thereof and amendments thereto, (iii) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto, including damages and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present or future infringements thereof.

 

“Excluded Property” means, collectively:

 

(i)any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant, attachment or enforcement of a security interest therein would, under applicable federal law, impair the registrability of such applications or the validity or enforceability of registrations issuing from such applications; and

 

(ii)any asset or property to the extent that the grant of a security interest is prohibited by applicable law, rule or regulation or requires a consent not obtained of any Governmental Authority pursuant to such applicable law, rule or regulation, in each case after giving effect to the applicable anti-assignment provisions of the UCC, PPSA or other applicable law and other than Proceeds and receivables thereof, the assignment of which is expressly deemed effective under the UCC or other applicable law notwithstanding such prohibition.

 

“Event of Default” has the meaning ascribed thereto in each of the Debentures.

 

“First Priority” means, with respect to any Lien purported to be created in any Pledged Collateral pursuant to this Agreement, such Lien is the most senior lien to which such Pledged Collateral is subject (subject only to Liens permitted under the Subscription Agreement).

 

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“Grantor” has the meaning set forth in the recitals above.

 

“Guarantors” has the meaning set forth in the recitals.

 

“Intellectual Property Collateral” means, collectively, the Patents, Trademarks (excluding only United States intent-to-use Trademark applications to the extent that and solely during the period in which the grant of a security interest therein would impair, under applicable federal law, the registrability of such applications or the validity or enforceability of registrations issuing from such applications), Copyrights, Trade Secrets, Intellectual Property Licenses and all other industrial, intangible and intellectual property of any type, including mask works and industrial designs.

 

“Intellectual Property Licenses” means, collectively, with respect to each Grantor, all license and distribution agreements with, and covenants not to sue, any other party with respect to any Patent, Trademark, Copyright or Trade Secret or any other patent, trademark, copyright or trade secret, whether such Grantor is a licensor or licensee, distributor or distributee under any such license or distribution agreement, together with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements or violations thereof, (iii) rights to sue for past, present and future infringements or violations thereof and (iv) other rights to use, exploit or practice any or all of the Patents, Trademarks, Copyrights or Trade Secrets or any other patent, trademark, copyright or trade secret.

 

“Subscription Agreement” has the meaning set forth in the recitals above.

 

“Organizational Documents” means the certificate of incorporation and by-laws or any comparable organizational documents of any corporate entity (including limited liability companies and partnerships).

 

“Patents” means, collectively, with respect to each Grantor, all patents issued or assigned to, and all patent applications and registrations made by, such Grantor (whether issued, established or registered or recorded in the United States, Canada or any other country or any political subdivision thereof) and all tangible embodiments of the foregoing, together with any and all (i) rights and privileges arising under applicable law and international treaties and conventions with respect to such Grantor's use of any patents, (ii) inventions and improvements described and claimed therein, (iii) reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof and amendments thereto, (iv) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements thereof, (v) rights corresponding thereto throughout the world and (vi) rights to sue for past, present or future infringements thereof.

 

“Pledged Collateral” has the meaning set forth in 3.1.

 

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“Pledged Debt”  means, with respect to each Grantor, all debt (including intercompany notes) from time to time owed to such Grantor by any obligor, and all interest, cash, instruments and other property, assets or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such debt and all certificates, instruments or agreements evidencing such debt, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof.

 

“Pledged Securities” means, collectively, with respect to each Grantor, (i) all issued and outstanding equity interests of each issuer or subsidiary that are owned by such Grantor and all options, warrants, rights, agreements and additional equity interests of whatever class of any such issuer or subsidiary acquired by such Grantor in any manner, together with all claims, rights, privileges, authority and powers of such Grantor relating to such equity interests in each such issuer or subsidiary or under any Organizational Document of each such issuer or subsidiary, and the certificates, instruments and agreements representing such equity interests and any and all interest of such Grantor in the entries on the books of any financial intermediary pertaining to such equity interests, (ii) all additional equity interests of any issuer or subsidiary from time to time acquired by or issued to such Grantor and all options, warrants, rights, agreements and additional equity interests of whatever class of any such issuer or subsidiary from time to time acquired by such Grantor in any manner, together with all claims, rights, privileges, authority and powers of such Grantor relating to such equity interests or under any Organizational Document of any such issuer or subsidiary, and the certificates, instruments and agreements representing such equity interests and any and all interest of such Grantor in the entries on the books of any financial intermediary pertaining to such equity interests, from time to time acquired by such Grantor in any manner, and (iii) all equity interests issued in respect of the equity interests referred to in clause (i) or (ii) upon any consolidation or merger of any issuer of such equity interests of any successor subsidiary owned by such Grantor (unless such Grantor is the surviving entity);

 

“PPSA” means the Personal Property Security Act (Ontario), as now enacted or as the same may from time to time be amended, re-enacted or replaced

 

“Receivables” means all (i) Accounts, (ii) Chattel Paper, (iii) Payment Intangibles, (iv) Instruments, (v) General Intangibles, and (vi) to the extent not otherwise covered above, all other rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, regardless of how classified under the UCC together with all of Grantors' rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Records relating thereto.

 

“Related Parties” means, with respect to any Person, such Person's Affiliates and the directors, officers, employees, partners, agents, trustees, administrators, managers, advisors and representatives of it and its Affiliates.

 

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“Secured Obligations” means obligations of the Borrower from time to time arising under the Subscription Agreement and Debentures.

 

“Securities Collateral” means, collectively, the Pledged Securities, the Pledged Debt and the Distributions.

 

“Trade Secrets” means, collectively, with respect to each Grantor, all know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, technical, marketing, financial and business data and databases, pricing and cost information, business and marketing plans, customer and supplier lists and information, all other confidential and proprietary information and all tangible embodiments of the foregoing, together with any and all (i) rights and privileges arising under applicable law and international treaties and conventions with respect to such trade secrets, (ii) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto including damages and payments for past, present or future misappropriations thereof, (iii) rights corresponding thereto throughout the world and (iv) rights to sue for past, present or future misappropriations thereof.

 

“Trademarks” means, collectively, with respect to each Grantor, all trademarks (including service marks), slogans, logos, symbols, certification marks, collective marks, trade dress, uniform resource locators (URL's), domain names, corporate names and trade names, whether statutory or common law, whether registered or unregistered and whether established or registered in the United States, Canada or any other country or any political subdivision thereof, that are owned by or assigned to such Grantor, all registrations and applications for the foregoing and all tangible embodiments of the foregoing, together with, in each case, the goodwill symbolized thereby and any and all (i) rights and privileges arising under applicable law and international treaties and conventions with respect to such Grantor's use of any trademarks, (ii) reissues, continuations, extensions and renewals thereof and amendments thereto, (iii) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages, claims and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present and future infringements thereof.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the State of Delaware; provided, however, that if by reason of mandatory provisions of law, any or all of the perfection or priority of the Collateral Agent’s and the Holders’ security interest in any item or portion of the Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Delaware, then the term “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions relating to such provisions.

 

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Article 2
guarantees

 

2.1Guarantee

 

Each Guarantor absolutely, irrevocably and unconditionally guarantees to the Holders, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment and performance of the Debentures. Each Guarantor further agrees that the Debentures may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Debenture. Each Guarantor waives (to the extent permitted by applicable law) presentment to, demand of payment from and protest to the Borrower or any other Grantor of any Debenture, and also waives notice of acceptance of its guarantee and notice of protest for non-payment. Each Guarantor hereby further jointly and severally agrees that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Debentures, such Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Debentures, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

 

2.2Guarantee of Payment

 

Each Guarantor further agrees that its guarantee under this Agreement constitutes a guarantee of payment when due and payable and not of collection, and waives any right (except such as shall be required by applicable law and cannot be waived) to require that any resort be had by the Collateral Agent or any other Holder to any security held for the payment of the Debentures or to any balance of any deposit account or credit on the books of the Collateral Agent in favour of the Borrower or any other person.

 

2.3No Limitations

 

(1)          The obligations of each Guarantor under this Agreement shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Subscription Agreement, Debentures or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor shall not be discharged or impaired or otherwise affected by (i) the failure of the Collateral Agent or any other Holder to assert any claim or demand or to enforce any right or remedy under the provisions of the Subscription Agreement or any Debenture or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, the Subscription Agreement or any Debenture (other than pursuant to the terms of a waiver, amendment, modification or release of this Agreement in accordance with the terms of this Agreement) or any other agreement, including with respect to the release of any other Guarantor under this Agreement, (iii) the release of, or any impairment of or failure to perfect any Lien on or security interest in, any security held by the Collateral Agent or any other Holder for the Debentures, (iv) any default, failure or delay, wilful or otherwise, in the performance of the Debentures, or (v) any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a discharge of any Guarantor as a matter of law or equity. Each Guarantor expressly authorizes the Collateral Agent, in accordance with the Subscription Agreement and applicable law, to take and hold security for the payment and performance of the Debentures, to exchange, waive or release any or all such security (with or without consideration), to enforce or apply such security and direct the order and manner of any sale thereof in its sole discretion or to release or substitute any one or more other Guarantors upon or in respect of the Debentures, all without affecting the obligations of any Guarantor.

 

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(2)          To the fullest extent permitted by applicable law, each Guarantor waives any defense (other than payment or performance of the Debentures (other than contingent obligations), in full) based on or arising out of any defense of the Borrower or any other Grantor or the unenforceability of the Debentures or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower or any other Grantor. The Collateral Agent and the other Holders may, in accordance with the provisions of this Agreement, the Debentures and applicable law, at their election, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Debentures, make any other accommodation with the Borrower or any other Grantor or exercise any other right or remedy available to them against the Borrower or any other Grantor, without affecting or impairing in any way the liability of any Guarantor hereunder. To the fullest extent permitted by applicable law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other Grantor, as the case may be, or any security.

 

2.4Reinstatement

 

Each Guarantor agrees that its guarantee hereunder shall continue to be effective or shall be automatically reinstated, as the case may be, if at any time and for any reason full or partial payment of any Debenture is rescinded or must otherwise be restored by the Collateral Agent or any other Holder whether upon the bankruptcy or reorganization of the Borrower, any other Grantor, or otherwise.

 

2.5Agreement To Pay and Subrogation

 

In furtherance of the foregoing and not in limitation of any other right that the Collateral Agent or any other Holder has at law or in equity against any Guarantor by virtue of this Agreement, upon the failure of the Borrower or any other Grantor to pay any Debenture when and as the same shall become due and payable, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby jointly and severally promises to and will promptly pay, or cause to be paid, to the Collateral Agent for distribution to the Holders in cash the amount of such unpaid Debenture (other than payment of any contingent obligations).

 

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2.6Information

 

Each Guarantor assumes all responsibility for being and keeping itself reasonably informed of the Borrower’s and each other Grantor’s financial condition and assets and of all other circumstances bearing upon the risk of non-payment of the Debentures and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that neither the Collateral Agent nor any other Holder will have any duty to advise such Guarantor of information known to it or any of them regarding such circumstances or risks.

 

2.7Instrument for the Payment of Money

 

Each Guarantor hereby acknowledges that the guarantees in this Article 2 constitute instruments for the payment of money, and consents and agrees that the Collateral Agent, at its sole option, in the event of a dispute by such Guarantor in the payment of any moneys due under this Agreement, shall have the right to bring a summary judgment motion-action under New York CVP. Law Section 3213.

 

Article 3
Grant of security interest

 

3.1Grant of Security Interest

 

(1)          As collateral security for the payment and performance in full of all the Secured Obligations, each Grantor hereby pledges and grants to the Collateral Agent for the ratable benefit of the Holders, a Lien on and security interest in and to all of the right, title and interest of such Grantor in, to and under the following property, wherever located, and whether now existing or hereafter arising or acquired from time to time (collectively, the “Pledged Collateral”):

 

(a)all Accounts;

 

(b)all Equipment, Goods, Inventory and Fixtures;

 

(c)all Documents, Instruments and Chattel Paper;

 

(d)all Letters of Credit and Letter-of-Credit Rights;

 

(e)all Securities Collateral;

 

(f)all Investment Property;

 

(g)all Intellectual Property Collateral;

 

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(h)all General Intangibles;

 

(i)all Money and all Deposit Accounts;

 

(j)all Supporting Obligations;

 

(k)all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records relating to the Pledged Collateral and any General Intangibles at any time evidencing or relating to any of the foregoing; and

 

(l)to the extent not covered by clauses (a) to (k) of this sentence, all other assets, personal property and rights of such Grantor, whether tangible or intangible, all Proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to such Grantor from time to time with respect to any of the foregoing.

 

(2)          Notwithstanding anything to the contrary contained in subsection 3.1(1), the security interest created by this Agreement shall not extend to, and the term “Pledged Collateral” shall not include, any Excluded Property, provided that, if any Excluded Property would have otherwise constituted Pledged Collateral, when such property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Pledged Collateral.

 

(3)          The Grantors shall from time to time at the request of the Collateral Agent give written notice to the Collateral Agent identifying in reasonable detail the Excluded Property (and stating in such notice that such Excluded Property constitutes “Excluded Property”) and shall provide to the Collateral Agent such other information regarding the Excluded Property as the Collateral Agent may reasonably request.

 

3.2Filings

 

(1)          Each Grantor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction any financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the UCC of each applicable jurisdiction, or as applicable by the provisions of the PPSA, for the filing of any financing statement or amendment relating to the Pledged Collateral, including (i) whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor, and (ii) any financing or continuation statements or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by such Grantor hereunder, without the signature of such Grantor where permitted by law, including the filing of a financing statement describing the Pledged Collateral as “all assets now owned or hereafter acquired by the Grantor or in which the Grantor otherwise has rights”. Each Grantor agrees to provide all information described in the immediately preceding sentence to the Collateral Agent promptly upon request by the Collateral Agent.

 

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(2)          Each Grantor hereby further authorizes the Collateral Agent to file with the United States Patent and Trademark Office, the United States Copyright Office, the Canadian Intellectual Property Office (and any successor office and any similar office in any United States state or other country) this Agreement, an Intellectual Property security agreement and other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by such Grantor hereunder, without the signature of such Grantor where permitted by law, and naming such Grantor as debtor, and the Collateral Agent as secured party.

 

Article 4
Perfection and further assurances

 

4.1Maintenance of Perfected Security Interest

 

Each Grantor represents and warrants that on the date hereof all financing statements, agreements, instruments and other documents necessary to perfect the security interest granted by it to the Collateral Agent in respect of the Pledged Collateral have been delivered to the Collateral Agent in completed and, to the extent necessary or appropriate, duly executed form for filing in each governmental, municipal or other office. Each Grantor agrees that at its sole cost and expense, such Grantor will maintain the security interest created by this Agreement in the Pledged Collateral as a perfected First Priority security interest.

 

4.2Joinder of Additional Grantors

 

The Grantors shall cause each Subsidiary of the Borrower which, from time to time, after the date hereof shall be formed, to execute and deliver to the Collateral Agent a joinder agreement within 30 days of the date on which it was acquired or created and, upon such execution and delivery, such Subsidiary shall constitute a “Grantor” for all purposes hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of such joinder agreements shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party to this Agreement.

 

4.3Further Assurances

 

(1)          Each Grantor shall take such further actions, and execute and deliver to the Collateral Agent such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, as the Collateral Agent may in its reasonable judgment deem necessary or appropriate in order to create and maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted in the Pledged Collateral as provided herein and the rights and interests granted to the Collateral Agent hereunder, and enable the Collateral Agent to exercise and enforce its rights, powers and remedies hereunder with respect to any Pledged Collateral, including the filing of any financing statements, continuation statements and other documents under the UCC, PPSA or other similar laws in effect in any jurisdiction with respect to the security interest created hereby, the filing of the Intellectual Property Collateral security acknowledgments and supplemental Intellectual Property Collateral security acknowledgments with the United States Patent and Trademark Office, United States Copyright Office, the Canadian Intellectual Property Office and any other applicable jurisdiction’s intellectual property registration office, all in form reasonably satisfactory to the Collateral Agent and in such offices wherever required by law to perfect, continue and maintain the validity, enforceability and priority of the security interest in the Pledged Collateral as provided herein and to preserve the other rights and interests granted to the Collateral Agent hereunder, as against third parties, with respect to the Pledged Collateral.

 

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Article 5
Representations, warranties and covenants

 

Each Grantor represents, warrants and covenants as follows:

 

(a)Approvals. In the event that the Collateral Agent desires to exercise any remedies, voting or consensual rights or attorney-in-fact powers set forth in this Agreement and determines it necessary to obtain any approvals or consents of any Governmental Authority or any other Person therefor, then, upon the reasonable request of the Collateral Agent, such Grantor agrees to use its commercially reasonable efforts to assist the Collateral Agent in obtaining as soon as practicable any necessary approvals or consents for the exercise of any such remedies, rights and powers.

 

(b)Pledged Collateral Information. All information set forth herein, including the schedules annexed hereto, and all information contained in any documents, schedules and lists heretofore delivered to the Collateral Agent or any Holder, in connection with this Agreement, in each case, relating to the Pledged Collateral, is accurate and complete in all material respects. The Pledged Collateral described on the schedules hereof constitutes all of the property of such type of Pledged Collateral owned or held by the Grantors.

 

(c)Insurance. In the event that the proceeds of any insurance claim are paid to any Grantor after the Collateral Agent has exercised its right to foreclose on all or any part of the Pledged Collateral during the existence of an Event of Default, such net cash proceeds shall be held in trust for the benefit of the Collateral Agent and immediately after receipt thereof shall be paid to the Collateral Agent for application in accordance with the Subscription Agreement.

 

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(d)Compliance With Laws. Each Grantor shall pay promptly when due all Claims upon the Pledged Collateral or incurred in connection with the use or operation of the Pledged Collateral or incurred in connection with this Agreement. All Claims imposed upon or assessed against the Pledged Collateral have been paid and discharged. In the event any Grantor shall fail to make such payment contemplated in the immediately preceding sentence, the Collateral Agent may (following notice to the Grantor, to the extent practicable) do so for the account of such Grantor and the Grantors shall promptly reimburse and indemnify the Collateral Agent for all costs and expenses incurred by the Collateral Agent under this Article 5(d) in accordance with Section 8.8.

 

Article 6
Intellectual property collateral

 

6.1Intellectual Property License

 

For the purpose of enabling the Collateral Agent, during the continuance of an Event of Default, to exercise rights and remedies under Article 7 hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Collateral Agent, to the extent of such Grantor's rights and effective only during the continuance of an Event of Default, an irrevocable, non-exclusive license, subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of such Trademarks, to use and sublicense any of the Intellectual Property Collateral then owned by or licensed to such Grantor. Such license shall include access to all devices, products and media in which any of the Intellectual Property Collateral is embodied, embedded, recorded or stored and to all computer programs used for the compilation or printout hereof.

 

6.2Dealing With Intellectual Property

 

On a continuing basis, each Grantor shall, at its sole cost and expense:

 

(a)promptly following its becoming aware thereof, notify the Collateral Agent of any materially adverse determination in any proceeding or the institution of any proceeding in any federal, state or local court or administrative body or in the United States Patent and Trademark Office or the United States Copyright Office regarding such Grantor's claim of ownership in or right to use any of the Intellectual Property Collateral, such Grantor's right to register such Intellectual Property Collateral or its right to keep and maintain such registration in full force and effect;

 

(b)maintain and protect the material Intellectual Property Collateral as presently used and operated and as contemplated by the Subscription Agreement;

 

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(c)not permit to lapse or become abandoned any material Intellectual Property Collateral as presently used and operated, and not settle or compromise any pending or future litigation or administrative proceeding with respect to such Intellectual Property Collateral, in each case except as shall be consistent with commercially reasonable business judgment;

 

(d)upon such Grantor obtaining knowledge thereof, promptly notify the Collateral Agent in writing of any event which may be reasonably expected to materially and adversely affect the value or utility of any of the material Intellectual Property Collateral, the ability of such Grantor or the Collateral Agent to dispose of the Intellectual Property Collateral or any portion thereof, or the rights and remedies of the Collateral Agent in relation thereto including a levy or threat of levy or any legal process against the Intellectual Property Collateral or any portion thereof;

 

(e)not license the Intellectual Property Collateral other than licenses entered into by such Grantor in, or incidental to, the ordinary course of business, or amend or permit the amendment of any of the licenses in a manner that would materially impair the value of the Intellectual Property Collateral or the Lien on and security interest in the Intellectual Property Collateral created therein hereby, without the consent of the Collateral Agent; and

 

(f)furnish to the Collateral Agent from time to time upon the Collateral Agent's reasonable request therefor reasonably detailed statements and amended schedules further identifying and describing the Intellectual Property Collateral and such other materials evidencing or reports pertaining to the Intellectual Property Collateral as the Collateral Agent may from time to time reasonably request.

 

6.3Additional Intellectual Property

 

If any Grantor shall at any time after the date hereof (a) obtain any rights to any additional Intellectual Property Collateral or (b) become entitled to the benefit of any additional Intellectual Property Collateral or any registration, renewal or extension thereof, including any reissue, division, continuation, or continuation-in-part of any Intellectual Property Collateral, or any improvement on any Intellectual Property Collateral, the provisions hereof shall automatically apply thereto and any such item enumerated in clause (a) or (b) of this Section 6.3 with respect to such Grantor shall automatically constitute Intellectual Property Collateral as if such would have constituted Intellectual Property Collateral at the time of execution of this Agreement and be subject to the Lien and security interest created by this Agreement without further action by any party.

 

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Article 7
Remedies

 

7.1Remedies

 

(1)          If any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise, without any other notice to or demand upon any Grantor, in addition to the other rights and remedies provided for herein or in any Debenture or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC or PPSA, as applicable, and also may:

 

(a)require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent immediately, assemble the Pledged Collateral or any part thereof, as directed by the Collateral Agent and make it available to the Collateral Agent at a place and time to be designated by the Collateral Agent;

 

(b)without notice except as specified below, sell, resell, assign and deliver or grant a license to use or otherwise dispose of the Pledged Collateral or any part thereof, in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable;

 

(c)occupy any premises owned or leased by any of the Grantors where the Pledged Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and

 

(d)exercise any and all rights and remedies of any of the Grantors under or in connection with the Pledged Collateral, or otherwise in respect of the Pledged Collateral, including without limitation, (A) any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Contracts, the Receivables, and the other Pledged Collateral, (B) withdraw, or cause or direct the withdrawal, of all funds with respect to the Deposit Accounts, and (C) exercise all other rights and remedies with respect to the Receivables and the other Pledged Collateral.

 

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(2)          Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days’ notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Pledged Collateral, if permitted by applicable law, the Collateral Agent may be the purchaser, licensee, assignee or recipient of the Pledged Collateral or any part thereof and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of the Pledged Collateral or any part thereof payable at such sale. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Collateral Agent arising out of the exercise by it of any rights hereunder. Each Grantor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Pledged Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Pledged Collateral and any other security for the Secured Obligations or otherwise. The Collateral Agent shall not be liable for failure to collect or realize upon any or all of the Pledged Collateral or for any delay in so doing nor shall it be under any obligation to take any action with regard thereto. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for the Collateral Agent to dispose of the Pledged Collateral or any portion thereof by utilizing internet sites that provide for the auction of assets of the type included in the Pledged Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. The Collateral Agent shall not be obligated to clean-up or otherwise prepare the Pledged Collateral for sale.

 

(3)          If any Event of Default shall have occurred and be continuing, all payments received by any Grantor in respect of the Pledged Collateral shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over the Collateral Agent in the same form as so received (with any necessary endorsement).

 

(4)          If any Event of Default shall have occurred and be continuing, the Collateral Agent may, without notice to any Grantor except as required by law and at any time or from time to time, charge, set off and otherwise apply all or part of the Secured Obligations against any funds deposited with it or held by it.

 

(5)          If any Event of Default shall have occurred and be continuing, upon the written demand of the Collateral Agent, each Grantor shall execute and deliver to the Collateral Agent an assignment or assignments of any or all of the Intellectual Property Collateral and such other documents and take such other actions as are necessary or appropriate to carry out the intent and purposes hereof. Within five (5) Business Days of written notice thereafter from the Collateral Agent, each Grantor shall make available to the Collateral Agent, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of the Event of Default as the Collateral Agent may reasonably designate to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold by such Grantor under the Intellectual Property Collateral, and such persons shall be available to perform their prior functions on the Collateral Agent's behalf.

 

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7.2No Waiver and Cumulative Remedies

 

The Collateral Agent shall not by any act (except by a written instrument pursuant to Section 8.6, delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure on the part of the Collateral Agent to exercise, no course of dealing with respect to, and no delay on the part of the Collateral Agent in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, privilege or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy; nor shall the Collateral Agent be required to look first to, enforce or exhaust any other security, collateral or guaranties. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law.

 

7.3Application of Proceeds

 

Upon the exercise by the Collateral Agent of its remedies hereunder, any proceeds received by the Collateral Agent in respect of any realization upon any Pledged Collateral shall be applied, together with any other sums then held by the Collateral Agent pursuant to this Agreement, in accordance with the Subscription Agreement. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay the Secured Obligations and the fees and other charges of any attorneys employed by the Collateral Agent to collect such deficiency.

 

Article 8
GENERAL

 

8.1Appointment of Collateral Agent

 

(1)          The Collateral Agent has been appointed as collateral agent in the Subscription Agreement and shall act in accordance with the terms of the Subscription Agreement. The Collateral Agent may exercise or refrain from exercising any rights (including making demands and giving notices) and take or refrain from taking any action (including the release or substitution of the Pledged Collateral), in accordance with this Agreement and the Subscription Agreement. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be liable for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided in the Subscription Agreement. On the acceptance of appointment as the successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement. After any retiring Collateral Agent's resignation, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Collateral Agent.

 

17
 

 

(2)          The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Pledged Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with its own property consisting of similar instruments or interests. Neither the Collateral Agent nor any of the Holders shall have responsibility for (i) ascertaining or taking action whatsoever with regard to any Pledged Collateral (including matters relating to the Pledged Securities, whether or not the Collateral Agent or any other Holder has or is deemed to have knowledge of such matters; or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral.

 

(3)          The Collateral Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all matters pertaining to this Agreement and its duties hereunder.

 

8.2Performance By Collateral Agent

 

If any Grantor shall fail to perform any covenants contained in this Agreement after giving effect to all applicable grace periods if any (including any covenants to pay insurance, taxes and claims arising by operation of law in respect of the Pledged Collateral and to pay or perform any Grantor obligations under any Pledged Collateral) or if any representation or warranty on the part of any Grantor contained herein shall be breached, the Collateral Agent may (but shall not be obligated to) do or cause it to be done or remedy any such breach, and may make payments for such purpose; provided, however, that the Collateral Agent shall in no event be bound to inquire into the validity of any tax, Lien, imposition or other obligation which such Grantor fails to pay or perform as and when required hereby and which such Grantor does not contest in accordance with the provisions of the Subscription Agreement. Any and all amounts so paid by the Collateral Agent shall be reimbursed by the Grantors in accordance with the provisions of Section 8.8. Neither the provisions of this Section 8.2 nor any action taken by the Collateral Agent pursuant to the provisions of this Section 8.2 shall prevent any such failure to observe any covenant contained in this Agreement nor any breach of representation or warranty from constituting an Event of Default.

 

8.3Power of Attorney

 

Each Grantor hereby appoints the Collateral Agent its attorney-in-fact, with full power and authority in the place and stead of such Grantor and in the name of such Grantor, or otherwise, from time to time during the existence of an Event of Default in the Collateral Agent's discretion to take any action and to execute any instrument consistent with the terms of the Subscription Agreement and the Debentures which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof (but the Collateral Agent shall not be obligated to and shall have no liability to such Grantor or any third party for failure to so do or take action). The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term hereof. Each Grantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof.

 

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8.4Continuing Security Interest and Assignment

 

This Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) be binding upon the Grantors, their respective successors and assigns and (b) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and the other Holders and each of their respective permitted successors, transferees and assigns and their respective officers, directors, employees, affiliates, agents, advisors and controlling Persons; provided that, no Grantor shall assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent and any attempted assignment or transfer without such consent shall be null and void. Without limiting the generality of the foregoing clause (b), any Holder may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Holder, herein or otherwise, subject however, to the provisions of the Subscription Agreement.

 

8.5Termination and Release

 

At such time as the Debentures shall have been paid in full, the Pledged Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Collateral Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or any further action by any party, and all rights to the Pledged Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Collateral Agent shall deliver to such Grantor any Pledged Collateral held by the Collateral Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

 

8.6Modification in Writing

 

None of the terms or provisions of this Agreement may be amended, modified, supplemented, terminated or waived, and no consent to any departure by any Grantor therefrom shall be effective, except by a written instrument signed by the Collateral Agent in accordance with the terms of the Subscription Agreement. Any amendment, modification or supplement of any provision hereof, any waiver of any provision hereof and any consent to any departure by any Grantor from the terms of any provision hereof in each case shall be effective only in the specific instance and for the specific purpose for which made or given. This Agreement shall be construed as a separate agreement with respect to each Grantor and may be amended, modified, supplemented, terminated or waived with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder.

 

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8.7Notices

 

Unless otherwise provided herein, any notice or other communication required or permitted to be given under this Agreement shall be in writing and shall be given in the manner and become effective as set forth in the Subscription Agreement, and, as to any Grantor, addressed to it at the address of the Grantor set forth in Schedule A to this Agreement, and as to the Collateral Agent, addressed to it at the address set forth in the Subscription Agreement, or in each case at such other address as shall be designated by such party in a written notice to the other party.

 

8.8Indemnity and Expenses

 

(1)          Each Grantor hereby agrees to indemnify and hold harmless the Collateral Agent (and any sub-agent thereof) and each other Holder (each such Person being called an “Indemnitee”) from any losses, damages, liabilities, claims and related expenses (including the fees and expenses of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including any Grantor) other than such Indemnitee arising out of, in connection with or resulting from this Agreement (including, without limitation, enforcement of this Agreement) or any failure of any Secured Obligations to be the legal, valid, and binding obligations of any Grantor in accordance with their terms, whether brought by a third party or by such, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (i) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee or (ii) result from a claim brought by any Grantor against an Indemnitee for breach in bad faith of such Indemnitee's obligations hereunder or under any Debenture, if such Grantor or such party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

 

(2)          To the fullest extent permitted by applicable law, each Grantor hereby agrees not to assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, or any agreement or instrument contemplated hereby, or the transactions contemplated hereby or thereby. No Indemnitee shall be liable for any damages arising from the use of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the Debentures or the transactions contemplated hereby or thereby by unintended recipients.

 

(3)          Without prejudice to the survival of any other agreement of any Grantor under this Agreement, the Subscription Agreement or any Debenture, the agreements and obligations of each Grantor contained in this Section shall survive termination of such agreements and payment in full of the Debentures.

 

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8.9Governing Law

 

This Agreement will be governed by and construed in accordance with the internal laws of the State of New York and and the courts of the State of New York will have jurisdiction to entertain any action arising under this Agreement, except for matters pertaining to the enforcement of Secured Obligations against Pledged Collateral located in Canada, in which case the laws of the Province of Ontario shall apply and jurisdiction and venue shall be in the Province of Ontario.

 

8.10Severability of Provisions

 

Any provision hereof which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof or affecting the validity, legality or enforceability of such provision in any other jurisdiction.

 

8.11Counterparts; Integration; Effectiveness

 

This Agreement and any amendments, waivers, consents or supplements hereto may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all taken together shall constitute a single contract. This Agreement, the Subscription Agreement and the Debentures constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto. This Agreement shall become effective when it shall have been executed by the Collateral Agent and when the Collateral Agent shall have received counterparts hereof signed by each of the other parties hereto. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

8.12No Release

 

Nothing in this Agreement, nor the exercise by the Collateral Agent of any of the rights or remedies hereunder, shall relieve any Grantor from the performance of any term, covenant, condition or agreement on such Grantor's part to be performed or observed in respect of any of the Pledged Collateral or from any liability to any Person in respect of any of the Pledged Collateral or shall impose any obligation on the Collateral Agent or any other Holder to perform or observe any such term, covenant, condition or agreement on such Grantor's part to be so performed or observed or shall impose any liability on the Collateral Agent or any other Holder for any act or omission on the part of such Grantor relating thereto or for any breach of any representation or warranty on the part of such Grantor contained in this Agreement, the Subscription Agreement or the Debentures, or in respect of the Pledged Collateral or made in connection with them. Neither the Collateral Agent nor any other Holder shall have any obligation or liability under any contracts, agreements and other documents included in the Pledged Collateral by reason of this Agreement, nor shall the Collateral Agent or any other Holder be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any such contract, agreement or other document included in the Pledged Collateral. The obligations of each Grantor contained in this Section 8.12 shall survive the termination of this Agreement and the discharge of the Grantor's other obligations under this Agreement, the Subscription Agreement and the Debentures.

 

[SIGNATURE PAGE FOLLOWS]

 

21
 

 

TO EVIDENCE ITS AGREEMENT the parties hereto have executed this Security Agreement on the date first written above.

 

  YAPPN CORP.
     
  Per:  
  Name:  
  Title:  

 

  YAPPN ACQUISITION SUB INC.
     
  Per:  
  Name:  
  Title:  

 

  YAPPN CANADA INC.
     
  Per:  
  Name:  
  Title:  

 

  FOTOYAPP INC.
     
  Per:  
  Name:  
  Title:  

 

  LANGULAS INC.
     
  Per:  
  Name:  
  Title:  

 

22
 

 

  YADMARK INC.
     
  Per:  
  Name:  
  Title:  

 

  YAFFILIATE MARKETING SERVICES INC.
     
  Per:  
  Name:  
  Title:  

 

  WINTERBERRY INVESTMENTS INC.
     
  Per:  
  Name:  
  Title:  

  

23
 

 

SCHEDULE A

 

GRANTOR ADDRESSES FOR NOTICES

 

 

 

24

 



Exhibit 99.1

 

  FOR IMMEDIATE RELEASE

 

Yappn executes purchase agreement for patents and
ecommerce language services assets

 

Yappn buys assets of Ortsbo Inc.

 

NEW YORK, NY – July 16, 2015 – Yappn Corp. (“Yappn” or “Company”) (OCTQB: YPPN) a leader in real-time language technology and translation is pleased to announce that it has, with the approval of the Board of Directors of each company, entered into a definitive agreement to acquire all of the intellectual property assets of Ortsbo Inc. (“Ortsbo”), a subsidiary of Intertainment Media Inc. (TSXV: INT / OTC: ITMTF / FRA: I4T) (“Intertainment”) as previously announced on May 26, 2015.

 

The purchased assets include US Patent No. 8,983,850 B2, US Patent No. 8,917,631 B2, US Patent No. 9,053,097 B2, and other intellectual property including Ecommerce and Customer Care know-how for a total purchase price of US $17 Million, which will be paid by the assumption of US $1 Million in debt and the issuance of US $16 Million worth of Yappn restricted common shares (320 Million shares at US $0.05 per share). The transaction is subject to closing conditions including each party obtaining all necessary approvals, including stock exchange approval and shareholder approval, if required.

 

In anticipation of these transactions, on June 11, 2015, Yappn announced that its Windrose Global Ecommerce Platform (“Windrose” or “WGE”) is now available at Shopify’s® app store. Yappn’s WGE application for Shopify® is a Microsoft Azure® cloud recurring fee based software-as-a-service (SaaS) deliverable that is a combination of a native Shopify® application (app) and a cloud-based real-time service and portal enabling E-tailers to expand their reach into up to 67 different languages simply and easily through an automated app install without any development or computer programming experience required on the user’s part. The Windrose app allows online stores to be viewed in multiple languages without the creation of additional Shopify® storefronts, making marketing, sales and support seamless and easy to both the customer and vendor.

 

Yappn also announces that it has completed a secured debt financing of US $4.5 Million of secured debentures and expects to close a further US $1 Million prior to the completion of the purchase of the Ortsbo assets. This financing is supported by Yappn’s secured line of credit holders and, as previously announced, Yappn executed a non-binding letter of intent with Winterberry Investments Inc. (“Winterberry”), a private company led by Mr. David Berry, pursuant to which Winterberry will facilitate and manage the financing transaction as well as to advise on Yappn’s future capital programs. This additional capital will be primarily used by Yappn to roll out its global Ecommerce expansion programs, and enable online Ecommerce technology companies, online vendors and development partners to enable real-time language programs to service a growing global audience.

 

"Execution of this agreement provides Yappn with ownership of key assets to move its business forward and continue to accelerate revenue programs and opportunities,” said David Lucatch, Founder and CEO of Yappn Corp. “Throughout our development our key stakeholders, including our line of credit holders, have been very supportive and we believe that the agreement to engage with David Berry to lead our capital markets programs enhances opportunities and potential future value of Yappn.”

 

 
 

 

  FOR IMMEDIATE RELEASE

  

The Company continues to expand its efforts with Ecommerce and communications as it has been testing a number of solutions to enable single language online storefronts to effectively market, sell and support E-tailing efforts, including the shopping cart, in multiple languages and is expecting a near term delivery of its framework for commercial revenue programs.

 

For more information, please visit www.yappn.com

 

To learn more about Why Language Matters to a growing global economy, visit our blog at www.whylanguagematters.com

 

About Yappn

 

Yappn is a real-time multilingual company that amplifies brand and social messaging, expands online commerce and provides customer support by globalizing these experiences with its proprietary approach to language. Through its real-time multilingual amplification platform, Yappn eliminates the language barrier, allowing the free flow of communications in 67 languages.

 

Yappn focuses on delivering global reach and efficiencies without the need of human intervention, making the language experience immediate through all phases of Ecommerce, online events and content programming.

 

Yappn Corp. is publicly traded in the U.S. on the OTCQB – symbol “YPPN” Intertainment Media Inc. (TSXV: INT / OTC: ITMTF / FRA: I4T), a leading technology incubator, has a controlling interest in Yappn Corp.

 

For more information, please visit http://www.yappn.com or contact:

 

David Lucatch, Founder and CEO

 

info@yappn.com

 

or

 

Jeanny So, VP, Corporate Communications

 

jeanny@yappn.com

 

T: 1.800.395.9943 x 228

 

To be added to the news release distribution list, please email: jeanny@yappn.com with the word
“News” on the subject line.

 

2
 

 

  FOR IMMEDIATE RELEASE

 

Forward Looking Information

 

Legal Notice and Safe Harbor Statement

 

This press release contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, and those preceded by or that include the words “believes,” “expects,” “given,” “targets,” “intends,” “anticipates,” “plans,” “projects,” “forecasts” or similar expressions, are “forward-looking statements.” Although Yappn Corp.’s management believes that such forward-looking statements are reasonable; it cannot guarantee that such expectations are, or will be, correct. These forward-looking statements involve a number of risks and uncertainties, which could cause the Company's future results to differ materially from those anticipated. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in the Company's filings with the SEC including the Current Report on Form 8-K filed on April 3, 2013 and each subsequently filed Quarterly Report on Form 10-Q and Current Report on Form 8-K. The Company assumes no obligation to update any of the information contained or referenced in this press release.

 

 

3 

 

 

 

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