Exhibit 10.24

 

LOAN AGREEMENT

 

Loan agreement dated March 2, 2016 (this “ Agreement ”) between Gilla Inc. (the “ Borrower ”) with principal offices at 70 York St., Suite 1610, Toronto, Ontario, M5J 1S9 and Gravitas International Corporation (the “ Lender ”)   with principal offices at 333 Bay St., Suite 650, Toronto, Ontario, M5H 2R2.

 

RECITALS

 

WHEREAS the Borrower desires that the Lender make available a term loan facility to the Borrower in the aggregate principal amount of $670,000;

 

AND WHEREAS the Lender is prepared to extend such a term loan facility to the Borrower subject to the terms and conditions set out herein;

 

NOW, THEREFORE , in consideration of the premises and the agreements, provisions and covenants herein contained and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Borrower and the Lender agree as follows:

 

ARTICLE 1

INTERPRETATION

 

        Section 1.1   Defined Terms.

 

As used in this Agreement, the following terms have the following meanings:

 

“ Applicable Rate ” means 6% per annum.

 

“ Borrower ” means Gilla Inc. and its successors and permitted assigns .

 

“ Business Day ” means any day of the year, other than a Saturday, Sunday or any day on which major banks are closed for business in Toronto, Ontario.

 

“ Closing Date ” means March 2, 2016.

 

“ Default ” means an event which, with the giving of notice or passage of time, or both, would constitute an Event of Default.

 

“ Draw ” means the draw of Tranche A and Tranche B on the Loan facility by the Borrower from the Lender pursuant to this Agreement on the Closing Date.

 

“ Event of Default ” has the meaning specified in Section 6.1.

 

“ Funded Debt ” of any Person means (i) all indebtedness of such Person for or in respect of, borrowed money, bankers acceptances, letters of credit or letters of guarantee, (ii) all indebtedness of such Person for the deferred purchase price of property or services represented by a note, bond, debenture or other evidence of indebtedness, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all current liabilities of such Person represented by a note, bond, debenture or other evidence of indebtedness, and (v) all obligations under leases which have been or should be, in accordance with U.S. GAAP, recorded as capital leases in respect of which such Person is liable as lessee.

 

 

“ U.S. GAAP ” means generally accepted accounting principles in the United States, as approved by the Financial Accounting Standards Board, as in effect from time to time.

 

“ General Security Agreement ” means the General Security Agreement, granted to Gravitas International Corporation on March 2, 2016.

 

“ Governmental Entity ” means (i) any international, multinational, national, federal, provincial, state, municipal, local or other governmental or public department, central bank, court, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the above, (iii) any stock exchange and (iv) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the above.

 

“ Indemnified Person ” has the meaning specified in Section 7.4.

 

“ Lender ” means Gravitas International Corporation and its successors and assigns.

 

“ Loan ” means the term loan facility in the aggregate principal amount of $670,000 to be made available to the Borrower by the Lender under this Agreement on the Closing Date and the Secondary Draw Date for the purposes set out in Section 2.2.

 

“ Loan Documents ” means this Agreement, the General Security Agreement, Warrant A, Warrant B and all other documents to be executed and delivered to the Lender by the Borrower pursuant to or in connection with this Agreement.

 

“ Material Adverse Effect ” means a material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of the Borrower.

 

“ Material Agreement ” means any contract or agreement to which the Borrower is a party or by which it is bound, the termination or cancellation of which (prior to the scheduled termination date) could have a Material Adverse Effect.

 

“ Maturity Date ” means March 2, 2018.

 

“ Person ” means a natural person, partnership, corporation, joint stock company, trust, unincorporated association, joint venture or other entity or Governmental Entity and pronouns have a similarly extended meaning.

 

“ Secondary Draw Date ” means on or before May 2, 2016.

 

“ Tranche A ” means the initial draw on the Loan facility in the principal amount of $335,000 by the Borrower from the Lender pursuant to this Agreement on the Closing Date.

 

 

“ Tranche B ” means the secondary draw on the Loan facility in the principal amount of $335,000 by the Borrower from the Lender pursuant to this Agreement on the Secondary Draw Date.

 

“ Warrant ” means the Warrant A and Warrant B granted by Borrower to Lender, containing terms acceptable to Lender in its sole and reasonable discretion, entitling Lender to purchase a total of  1,000,000 common shares of the Borrower at an exercise price equal to US$0.20, such Warrant A and Warrant B having different vesting conditions.

 

“ Warrant A ” means the warrant granted by Borrower to Lender, containing terms acceptable to Lender in its sole and reasonable discretion, entitling Lender to purchase 500,000 common shares of the Borrower at an exercise price equal to US$0.20, such warrant to vest upon completion of the initial Draw, which warrant is to remain in effect from the Closing Date until March 2, 2018.

 

“ Warrant B ” means the warrant granted by Borrower to Lender, containing terms acceptable to Lender in its sole and reasonable discretion, entitling Lender to purchase 500,000 common shares of the Borrower at an exercise price equal to US$0.20, such warrant to vest upon completion of the secondary Draw B, which warrant is to remain in effect from the Closing Date until March 2, 2018. If such secondary Draw B is not completed prior to the Secondary Draw Date, the warrants shall be cancelled and deemed null and void.

 

            Section 1.2         Gender and Number.

 

Any reference in the Loan Documents to gender includes all genders and words importing the singular number only include the plural and vice versa .

 

Section 1.3         Headings, etc.

 

The division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and are not to affect the interpretation of this Agreement.

 

Section 1.4         Currency.

 

All references in the Loan Documents to dollars, unless otherwise specifically indicated, are expressed in Canadian currency.

 

Section 1.5         Certain Phrases, etc.

 

In any Loan Document (i) (a) the words “including” and “includes” mean “including (or includes) without limitation” and (b) the phrase “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of”, and (ii) in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.

 

 

Section 1.6         Accounting Terms.

 

All accounting terms not specifically defined in this Agreement shall be interpreted in accordance with U.S. GAAP.

 

Section 1.7         Conflict.

 

The provisions of this Agreement prevail in the event of any conflict or inconsistency between its provisions and the provisions of any of the other Loan Documents.

 

ARTICLE 2

LOAN FACILITY

 

Section 2.1         Availability.

 

(1)	The Lender agrees, on the terms and subject to the conditions of this Agreement, to make the Loan available through Tranche A on the Closing Date and Tranche B, at the option of the Lender, on the Secondary Draw Date.

 

(2)	The Loan shall be a term loan facility. For greater certainty, the Borrower shall be entitled to Draw Tranche A on the Closing Date and Draw Tranche B, if made available by the Lender, on the Secondary Draw Date and, subject to Section 2.4, repay the outstanding principal amount under the Loan.

 

(3)	The Lender shall maintain, in accordance with its usual practice, records evidencing the amounts owing under this Agreement; and the information entered into such records shall constitute conclusive evidence of such amounts owed absent manifest error.

 

Section 2.2        Purpose.

 

The Loan shall be used by the Borrower, or any of its subsidiaries’, for capital expenditures, marketing expenditures and working capital.

Section 2.3         Repayment of Principal and Interest Payments.

 

(1)	The principal amount of the outstanding Loan shall bear interest at the Applicable Rate.

 

(2)	Interest shall accrue daily and shall be calculated and payable monthly, in arrears.

 

(3)	Borrower shall repay five percent (5%) of the initial principal amount of Tranche A and five percent (5%) of the initial principal amount of Tranche B, only if made available to the Borrower, monthly in arrears, with the first principal repayment beginning on June 30, 2016.

 

(4)	Borrower shall make one (1) monthly installment of interest and principal repayment within five (5) Business Days of each months’ end.

 

 

(5)	Subject to Section 6.2, the outstanding principal amount of the Loan together with all accrued and unpaid interest thereon shall become due and payable on the Maturity Date, if any.

 

Section 2.4         Early Repayment.

 

The Borrower shall have the right and privilege of repaying the whole or any portion of the Advances, without premium or penalty, at any time or times.

 

Section 2.5        General Security Assignment.

 

The Borrower shall grant a general security interest in the Borrower to the Lender though a General Security Agreement, attached hereto as Schedule A and dated March 2, 2016, to remain in place until full repayment of the outstanding principal amount of the Loan together with all accrued and unpaid interest.

 

Section 2.6         Payments under this Agreement.

 

(1)

Unless otherwise expressly provided in this Agreement or by the parties in writing, the Borrower shall make any payment required to be made by it to the Lender by depositing the amount of the payment to an account specified by the Lender not later than 4:00 p.m. (Toronto time) on the date the payment is due.

 

(2)

All amounts owed by the Borrower to the Lender, which are not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest (both before and after default and judgment), from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal to the Applicable Rate, plus 2%.

 

Section 2.7         Computations of Interest.

 

(1)	All computations of interest shall be made by the Lender taking into account the actual number of days occurring in the period for which such interest is payable, on the basis of a year of 365 days.

 

(2)

For purposes of the Interest Act (Canada), (i) whenever any interest or fee under this Agreement is calculated using a rate based on a year of 365 days, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the Applicable Rate based on a year of 365 or 366 days, as the case may be, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest or fee is payable (or compounded) ends, and (z) divided by 365 or 366 days, as the case may be, (ii) the principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement, and (iii) the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields.

 

 

ARTICLE 3

CONDITIONS OF LENDING

 

Section 3.1         Conditions Precedent to Initial Draw.

 

The Lender shall have no obligation to make the initial Draw hereunder unless at the time of making such draw the following terms and conditions shall have been satisfied:

 

(a)	the Lender has received, in form, substance, scope and dated a date satisfactory to it and its counsel:

 

(i)	an executed copy of each of the Loan Documents.

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

 

Section 4.1         Representations and Warranties.

 

The Borrower represents and warrants to the Lender, acknowledging and confirming that the Lender is relying on such representations and warranties without independent inquiry in entering into this Agreement and providing the Loan that:

 

(a)

Incorporation and Qualification. The Borrower is a corporation duly incorporated, organized and validly existing under the laws of the State of Nevada. The Borrower is qualified, licensed or registered to carry on business under the laws applicable to it in all jurisdictions in which such qualification, licensing or registration is necessary or where failure to be so qualified would have a Material Adverse Effect;

 

(b)	Corporate Power. The Borrower has all requisite corporate power and authority to (i) own, lease and operate its properties and assets and to carry on its business as now being conducted by it, and (ii) enter into and perform its obligations under the Loan Documents;

 

(c)

Conflict with Other Instruments. The execution and delivery by the Borrower and the performance by it of its obligations under, and compliance with the terms, conditions and provisions of, the Loan Documents will not (i) conflict with or result in a breach of any of the terms or conditions of (t) its constating documents, (u) any applicable law, rule or regulation, (v) any contractual restriction binding on or affecting it or its properties, or (w) any judgment, injunction, determination or award which is binding on it, or (ii) result in, require or permit (x) the imposition of any Lien in, on or with respect to any of its assets or property (except in favour of the Lender), (y) the acceleration of the maturity of any Funded Debt binding on or affecting the Borrower, or (z) any third party to terminate or acquire rights under any Material Agreement;

 

(d)

Corporate Action, Governmental Approvals, etc. The execution and delivery of each of the Loan Documents by the Borrower and the performance by the Borrower of its obligations under the Loan Documents has been duly authorized by all necessary corporate action including, without limitation, the obtaining of all necessary shareholder consents. No authorization, consent, approval, registration, qualification, designation, declaration or filing with any Governmental Entity or other Person, is or was necessary in connection with the execution, delivery and performance of obligations under the Loan Documents except as are in full force and effect, unamended, at the date of this Agreement;

 

 

(e)

Execution and Binding Obligation. This Agreement and the other Loan Documents have been duly executed and delivered by the Borrower and constitute legal, valid and binding obligations of the Borrower enforceable against it in accordance with its terms, subject only to any limitation under applicable laws relating to (i) bankruptcy, insolvency, arrangement or creditors’ rights generally, and (ii) the discretion that a court may exercise in the granting of equitable remedies;

 

(f)

Authorizations, etc. The Borrower possesses all authorizations, permits, consents, registrations and approvals necessary to properly conduct its businesses and to enter into and perform its obligations under the Loan Documents and all such authorizations, permits, consents, registrations and approvals are in good standing and in full force and effect;

 

(g)	Ownership and Use of Property. The Borrower has good and marketable title to all the real and personal property reflected as assets in its books and records. The Borrower owns, leases or has the lawful right to use all of the assets necessary for the conduct of its businesses;

 

(h)	Compliance with Laws. The Borrower is in compliance with all applicable laws, judgments and orders and rulings, guidelines and decisions having force of law;

 

(i)	No Default. The Borrower is not in violation of its constating documents, or any shareholders’ agreement applicable to it or any Material Agreement; and

 

(j)

No Material Adverse Agreements. The Borrower is not party to any agreement or instrument or subject to any restriction (including any restriction set forth in its constating documents, any shareholders’ agreement applicable to it or any Material Agreement) which has or may have a Material Adverse Effect.

 

Section 4.2         Survival of Representations and Warranties.

 

The representations and warranties in this Agreement and in any certificates or documents delivered to the Lender shall not merge in or be prejudiced by and shall continue in full force and effect so long as any amounts are owing by the Borrower to the Lender under this Agreement.

 

ARTICLE 5

COVENANTS OF THE BORROWER

 

Section 5.1         Affirmative Covenants.

 

So long as there remains any outstanding amount owing under the Loan or the Lender has any obligation under this Agreement, the Borrower shall:

 

(a)	Corporate Existence. Preserve and maintain its corporate existence;

 

 

(b)	Compliance with Laws, etc. Comply with the requirements of all applicable laws, judgments, orders, decisions, awards, Material Agreements and Loan Documents;

 

(c)

Payment of Taxes and Claims. Pay when due, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its income, sales, capital or profit or any other property belonging to, and (ii) all claims which, if unpaid, might by law become a Lien upon the assets, except any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings and in respect of which the Borrower has established adequate reserves in accordance with U.S. GAAP;

 

(d)	Keeping of Books. Keep proper books of record and account, in which full and correct entries shall be made in respect of its business and operations;

 

(e)	Ordinary Course. The Borrower shall conduct its business in a manner consistent with past practices, and in the ordinary course of its normal day-to-day operations;

 

(f)

Further Assurances. At its cost and expense, upon the reasonable request of the Lender, execute and deliver or cause to be executed and delivered to the Lender such further instruments and agreements and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Lender to carry out more effectually the provisions and purposes of the Loan Documents;

 

(g)

Payments to Chief Executive Officer, Chief Financial Officer and Directors. The Borrower agrees to service the Loan during the term, inclusive of the indebtedness to Gravitas Financial Inc., prior to making any payments to the Borrower’s Chief Executive Officer, Chief Financial Officer and Board of Directors. Further, the Borrower agrees to subordinate any amounts owing to the Borrower’s Chief Executive Officer, Chief Financial Officer and Directors, inclusive of loans, unpaid fees or payroll, and other existing debt obligations to (i) the Lender and (ii) Gravitas Financial Inc.; and

 

(h)	Future Loans. The Borrower shall not subordinate the rights of Lender under this Agreement or incur any indebtedness that is senior to the Lender, without the prior written consent of the Lender.

 

ARTICLE 6

EVENTS OF DEFAULT

 

Section 6.1         Events of Default.

 

If any of the following events (each an “ Event of Default ”) occurs and is continuing:

 

(a)	the Borrower fails to pay any amount under the Loan, any interest thereon or any other amounts due under any Loan Document when such amount becomes due and payable;

 

(b)	any representation or warranty or certification made or deemed to be made by the Borrower or any of its respective directors or officers in any Loan Document shall prove to have been incorrect when made or deemed to be made;

 

 

(c)	the Borrower fails to perform, observe or comply with any other term, covenant or agreement contained in any Loan Document to which it is a party and such failure remains unremedied for thirty (30) days;

 

(d)

any judgment or order for the payment of money in excess of $3,000,000 (or the equivalent amount in any other currency) is rendered against the Borrower and either (i) enforcement proceedings have been commenced by a creditor upon the judgment or order, or (ii) there is any period of fifteen (15) consecutive days during which a stay of enforcement of the judgment or order, by reason of a pending appeal or otherwise, is not in effect; or

 

(e)

the Borrower (i) becomes insolvent or generally not able to pay its debts as they become due, (ii) admits in writing its inability to pay its debts generally or makes a general assignment for the benefit of its creditors, (iii) institutes or has instituted against it any proceeding seeking (x) to adjudicate it a bankrupt or insolvent, (y) liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors including any plan of compromise or arrangement or other corporate proceeding involving or affecting its creditors, or (z) the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its properties and assets, and in the case of any such proceeding instituted against it (but not instituted by it), either the proceeding remains undismissed or unstayed for a period of forty-five (45) days, or any of the actions sought in such proceeding (including the entry of an order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its properties and assets) occurs, or (iv) takes any corporate action to authorize any of the above actions.

 

then the Lender may declare that the Loan, all accrued interest and fees and all other amounts payable under this Agreement to be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Borrower.

 

Section 6.2         Remedies Upon Default.

 

(1)

Upon a declaration that the Loan is immediately due and payable pursuant to Section 6.1, the Lender may commence such legal action or proceedings as it, in its sole discretion, deems expedient, including, the commencement of enforcement proceedings under the Loan Documents all without any additional notice, presentation, demand, protest, notice of dishonour, entering into of possession of any property or assets, or any other action or notice, all of which are expressly waived by the Borrower.

 

(2)

The rights and remedies of the Lender under the Loan Documents are cumulative and are in addition to, and not in substitution for, any other rights or remedies. Nothing contained in the Loan Documents with respect to the indebtedness or liability of the Borrower to the Lender, nor any act or omission of the Lender with respect to the Loan Documents in any way prejudice or affect the rights, remedies and powers of the Lender under the Loan Documents.

 

 

ARTICLE 7

MISCELLANEOUS

 

Section 7.1         Amendments, etc.

 

No amendment or waiver of any provision of any of the Loan Documents, nor consent to any departure by the Borrower or any other Person from such provisions, is effective unless in writing and approved by the Lender. Any amendment, waiver or consent is effective only in the specific instance and for the specific purpose for which it was given.

 

Section 7.2         Waiver.

 

(1)

No failure on the part of the Lender to exercise, and no delay in exercising, any right under any of the Loan Documents shall operate as a waiver of such right; nor shall any single or partial exercise of any right under any of the Loan Documents preclude any other or further exercise of such right or the exercise of any other right.

 

(2)

Except as otherwise expressly provided in this Agreement, the covenants, representations and warranties shall continue in full force and effect. The closing of this transaction shall not prejudice any right of one party against any other party in respect of anything done or omitted under this Agreement or in respect of any right to damages or other remedies.

 

Section 7.3         Notices, etc.

 

Any notice, direction or other communication to be given under this Agreement shall, except as otherwise permitted, be in writing and given by delivering it or sending it by facsimile or other similar form of recorded communication addressed:

 

(a)	to the Lender at:

 

333 Bay Street, Suite 650

Toronto, Ontario

M5H 2R2

jonson.sun@iliumcc.com   (with a copy to david@gravitasfinancial.com )

 

(b)	to the Borrower at:

 

70 York Street, Suite 1610

Toronto, Ontario, M5J 1S9

graham@gillainc.com (with a copy to ashish@gillainc.com )

Any such communication shall be deemed to have been validly and effectively given if (i) personally delivered, on the date of such delivery if such date is a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time), otherwise on the next Business Day, (ii) transmitted by facsimile or similar means of recorded communication on the Business Day following the date of transmission. Any party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to the party at its changed address.

 

 

Section 7.4         Indemnity.

 

The Borrower shall, whether or not the transaction contemplated by this Agreement is completed, indemnify and hold the Lender and its officers, directors, employees and agents (each an “Indemnified Person”) harmless from, and shall pay to such Indemnified Person on demand any amounts required to compensate the Indemnified Person for, any cost, expense, claim or loss suffered by, imposed on, or asserted against, the Indemnified Person as a result of, or arising out of (i) the preparation, execution and delivery of, preservation of rights under, enforcement of, or refinancing, renegotiation or restructuring of, the Loan Documents and any related amendment, waiver or consent, (ii) a Default (whether or not constituting a Default or an Event of Default), and (iii) any proceedings brought by or against the Indemnified Person, or in which the Indemnified Person otherwise participates, due to its entering into or being a party to any of the Loan Documents, or by reason of its exercising or performing, or causing the exercise or performance of, any right, power or obligation under any of the Loan Documents, whether or not such proceedings are directly related to the enforcement of any Loan Document, except to the extent caused by the gross negligence or wilful misconduct of the Indemnified Person.

 

Section 7.5         Successors and Assigns.

 

(1)	This Agreement shall become effective when executed by the Borrower and the Lender and after that time shall be binding upon and enure to the benefit of the Borrower and the Lender and their respective successors and permitted assigns.

 

(2)	The Borrower shall not have the right to assign its rights or obligations under this Agreement or any interest in this Agreement without the prior consent of the Lender, which consent may not be unreasonably withheld.

 

Section 7.6         Right of Set-off.

 

Upon the occurrence and during the continuance of any Event of Default, the Lender is authorized at any time and from time to time, to the fullest extent permitted by law (including general principles of common-law), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by it to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower under any of the Loan Documents, irrespective of whether or not the Lender has made demand under any of the Loan Documents and although such obligations may be unmatured or contingent. If an obligation is unascertained, the Lender may, in good faith, estimate the obligation and exercise its right of set-off in respect of the estimate, subject to providing the Borrower with an accounting when the obligation is finally determined. The Lender shall promptly notify the Borrower after any set-off and application is made by it, provided that the failure to give notice shall not affect the validity of the set-off and application. The rights of the Lender under this Section 7.6 are in addition to other rights and remedies (including all other rights of set-off) which the Lender may have.

 

 

Section 7.7         Entire Agreement

 

This Agreement, together with the Loan Documents, contain the entire agreement between the Lender and the Borrower with respect to the matters hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters.

 

Section 7.8         Governing Law.

 

This Agreement shall be governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

 

Section 7.9         Counterparts.

 

This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of this Agreement by electronic means, including, without limitation, by facsimile transmission or by electronic delivery in portable document format (“ . pdf ”) or tagged image file format (“ . tif ”), shall constitute the valid and binding signature of such party with the same effect as if it were an original signature endorsed on this Agreement.

 

Section 7.10   Language.

 

The parties hereto acknowledge that they have required and are satisfied that this Agreement and all communications to be delivered pursuant hereto be drawn in the English language.

 

Section 7.11   Syndication.

 

The Borrower acknowledges that the Lender is acting for and on behalf of itself and certain other Persons with respect to the establishment and maintenance of the Loan and that, except for the Warrant, the Loan Documents shall be granted in favour of and held by the Lender for and on behalf of itself and certain other Persons.

 

 

IN WITNESS WHEREOF the parties have executed this Agreement as of the date indicated above.

 

	GILLA INC.   By: /s/ Ashish Kapoor      Authorized Signing Officer
	GRAVITAS INTERNATIONAL CORPORATION   By: /s/ David Carbonaro      Authorized Signing Officer   By: /s/ Jonson Sun      Authorized Signing Officer

 

 

SCHEDULE A

[General Security Agreement follows]

 

 

 

 

 

 

 

 

 

 

 

 

 

---

 

Exhibit 10.25

 

 

EFFECTIVE DATE

 

March 2, 2016

1.   Grant of Security Interest

 

For valuable consideration (the receipt and sufficiency of which each of the parties hereto hereby acknowledges) the Debtor hereby grants to the Secured Party a security interest (to which the Personal Property Security Act (Ontario) and the regulations thereto, as the same may be amended from time to time (the " PPSA ") applies) in and grants, mortgages and charges as and by way of a fixed and specific mortgage and charge to and in favour of the Secured Party, all of the Debtor's rights, title and interests in and to each and every property described or referred to below (collectively, the " Collateral "), all pursuant to and in accordance with the provisions of this Agreement.

 

2.   Description of Collateral

 

The Collateral includes all of the following personal property, fixtures, leasehold interests and other property described below:

 

(a)

all goods now or hereafter comprising part of the inventory of the Debtor and all interests, rights and benefits, both present and future of the Debtor in or to inventory including, without limitation, goods now or hereafter held for sale or lease or furnished or to be furnished under a contract of service or that are raw materials, work in process or materials used or consumed in a business or profession or finished goods;

 

 

(b)

all equipment now or hereafter owned by the Debtor and all interests, rights and benefits, both present and future, of the Debtor in or to equipment including, without limitation, office, warehouse and other furniture, fixtures, machinery, tools, rolling stock, vehicles, accessories, spare parts, supplies and other tangible personal property;

 

(c)	all fixtures now or hereafter owned by the Debtor and all interests, rights and benefits, both present and future, of the Debtor in or to fixtures;

 

(d)	all chattel paper now or hereafter owned or held by the Debtor and all interests, rights and benefits, both present and future, of the Debtor in, under or to chattel paper;

 

(e)

each and every document of title now or hereafter owned by the Debtor or of which the Debtor is or becomes a holder, whether negotiable or non-negotiable, including, without limitation, each and every warehouse receipt and bill of lading, and all interests, rights and benefits, both present and future, of the Debtor in, under or to each and every document of title;

 

(f)	each and every instrument now or hereafter owned by the Debtor or of which the Debtor is or becomes a holder, and all interests, rights and benefits, both present and future, of the Debtor in, under or to each and every instrument;

 

(g)

each and every security now or hereafter owned by the Debtor or of which the Debtor is or becomes a holder including, without limitation, all shares, stocks, warrants, bonds, debentures, debenture stock or the like issued by a corporation or other person, or a partnership, association or government, and all interests, rights and benefits, both present and future, of the Debtor in, under or to each and every security;

 

(h)

all money of the Debtor and all money hereafter acquired by the Debtor and each and every account, debt, claim and demand of every nature and kind which is now due, owing or accruing due or which may hereafter become due, owing or accruing due to the Debtor, or which the Debtor now has or may hereafter have and all interests, rights and benefits, both present and future of the Debtor in or to each and every account, debt, claim and demand including, without limitation, claims against the Crown and claims under insurance policies;

 

(i)

all patents, industrial designs, trade-marks, trade secrets and know-how including without limitation, environmental technology and biotechnology, confidential information, trade-names, goodwill, copyrights, personality rights, plant breeders’ rights, integrated circuit topographies, software and all other forms of intellectual and industrial property, and any registrations and applications for registration of any of the foregoing (collectively, “ Intellectual Property ”);

 

(j)

each and every lease, agreement to lease and leasehold interest of the Debtor and all interests, rights and benefits, both present and future, of the Debtor, in, under or to the same, except the last day of any term of years reserved by any such lease or agreement therefor of which reversion of one day the Debtor shall stand possessed upon trust to assign and dispose of the same as the Secured Party shall direct;

 

 

(k)	each and every intangible now or hereafter owned by the Debtor or of which the Debtor is or becomes a holder, and all interests, rights and benefits, both present and future, of the Debtor in, under or to each and every intangible;

 

(l)	with respect to the property described in each of subparagraphs 2.(a) to 2.(k) inclusive, all substitutions and replacements thereof, improvements, increases, additions and accessions thereto and all interests, rights and benefits, both present and future, of the Debtor in, under or to the same;

 

(m)

with respect to the property described in each of subparagraphs 2. (a) to 2.(l) inclusive, identifiable or traceable personal property in any form derived directly or indirectly from any dealing with such property or the proceeds therefrom and includes any payment representing indemnity or compensation for loss of or damage to such property or proceeds therefrom; and

 

(n)

with respect to the property described in each of subparagraphs 2.(a) to 2.(m) inclusive, all books, accounts, invoices, letters, deeds, contracts, security, securities, instruments, bills, notes, writings, papers, documents and records in any form evidencing or relating thereto, and all other rights and benefits to which the Debtor is now or may hereafter become entitled in respect thereof.

 

In this Agreement, the words "goods", "inventory", "equipment", "chattel paper", "document of title", "instrument", "security", "money", "account", "motor vehicle", "vehicle identification number", "proceeds", "intangible" and "accessions" shall have the same meanings as their defined meanings in the PPSA.  In this Agreement, each reference to "Collateral" shall, unless the context otherwise requires, include and be read as "Collateral or any part thereof".

 

All of the Collateral, insofar as the same is not intangible property, is now and will hereafter be kept at the address set out above and at the following location(s):

 

3.   Secured Obligations

 

The security interests, mortgages and charges granted hereby secure all of the following (collectively, the " Obligations "):  both the performance and the payment to the Secured Party of all obligations, debts and liabilities (including, without limitation, on account of damages) of the Debtor to the Secured Party, present or future, direct or indirect, absolute or contingent, liquidated or unliquidated, matured or not, wheresoever and howsoever incurred,

 

(a)	whether arising under this or any other agreement (whether written or oral), instrument or writing;

 

(b)	whether arising from dealings between the Secured Party and the Debtor or from other dealings or proceedings by which the Secured Party may be or become in any manner whatever a creditor, obligee or promisee of the Debtor;

 

(c)	whether incurred by the Debtor alone or with another or others;

 

(d)	whether incurred by the Debtor as principal, surety, indemnitor, obligor or promissor; and

 

(e)	whether such obligations, debts and liabilities are from time to time reduced and thereafter increased or entirely extinguished and thereafter incurred again,

 

 

all including, without limitation, all interest, commissions, legal and other costs, charges and expenses payable in connection with any and all of the foregoing and, in addition thereto, the Expenses (provided for and defined below).

 

4.   Attachment

 

Each of the Debtor and the Secured Party acknowledges and confirms that the security interests, mortgages and charges granted hereby shall attach:

 

(a)	forthwith upon the Effective Date with respect to each and every property included in the Collateral and in which the Debtor then has rights; and

 

(b)	forthwith upon the Debtor first acquiring rights in each and every property included in the Collateral and in which the Debtor first acquires such rights subsequent to the Effective Date.

 

For greater certainty, without in any way limiting the above, each of the Debtor and the Secured Party acknowledges and confirms that they have not agreed to postpone the time for attachment of the said security interests, mortgages and charges.

 

5.   Debtor's Warranties

 

The Debtor hereby represents and warrants to and covenants with the Secured Party as follows and acknowledges that the Secured Party is, in part, relying upon such representations, warranties and covenants in accepting the security interests, mortgages and charges granted upon the terms of this Agreement:

 

(a)

Title to Collateral:  The Debtor is the absolute and beneficial owner of the Collateral and none of the Collateral is held in the name of any person other than the Debtor, whether as agent, trustee or other nominee for the Debtor, and all registrations and filings which may be required to preserve the Debtor's title, rights or other interests in the Collateral vis-a-vis others have been made.

 

(b)

No Encumbrances:  The Collateral is and shall at all times be kept free and clear of any and all, mortgages, hypothecs, pledges, claims, adverse claims, demands, liens, charges, security interests, encumbrances, agreements, rights and equities of any kind whatsoever other than those given by the Debtor to or in favour of Secured Party.

 

(c)	Due Authorization:  The Debtor has the corporate power and capacity to enter into this Agreement and to do all acts and things as are required or contemplated hereunder to be done, observed and performed by it.

 

(d)

Right to Grant:  The Debtor has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the Debtor shall at all relevant times have the full right, power and authority to perform its obligations hereunder and to grant the security interests, mortgages and charges as herein provided.

 

(e)

No Default:  The entering into of this Agreement and the performance by the Debtor of its obligations hereunder does not and will not contravene, breach or result in any default under any agreement to which the Debtor is a party or by which the Debtor or any of its properties or assets may be bound and will not result in or permit the acceleration of the maturity of any indebtedness, liability or obligation of the Debtor under any such agreement.

 

 

(f)	Re Intellectual Property:  All Intellectual Property applications and registrations are valid and in good standing and the Debtor is the owner of each of such applications and registrations.

 

6.   Debtor's Covenants

 

The Debtor covenants and agrees with the Secured Party that:

 

(a)	Obligations:  The Debtor shall pay, perform, satisfy, fulfil and discharge the Obligations when due.

 

(b)

Possession/Description:  Forthwith upon request by the Secured Party, the Debtor shall deliver possession of the Collateral to the Secured Party and shall, if requested by the Secured Party, deliver forthwith to the Secured Party such further details respecting the Collateral and, if the Collateral includes fixtures or crops, or oil, gas or other minerals to be extracted, or timber to be cut, identification and legal description (in registerable form) of the lands concerned.  Such further details and legal description so delivered shall be deemed to be contained in and form part of this Agreement.

 

7.   Events of Default

 

Forthwith upon the occurrence of any of the following events (an " Event of Default "), the Obligations will, without the Secured Party being required to give notice or demand, become due and payable in full and, to the extent applicable, be required to be fully performed:

 

(a)	the failure of the Debtor to pay when due any payment of any of the Obligations, if not cured within 30 days of written notice to the Debtor;

 

(b)	the failure of the Debtor to perform any of the Obligations;

 

(c)	the Debtor making or agreeing to make an assignment, disposition or conveyance, whether by way of sale or otherwise, of its assets in bulk;

 

(d)

the Debtor taking any action or commencing any proceeding or any action or proceeding being taken or commenced by another person or persons against the Debtor in respect of the liquidation, dissolution or winding-up of the Debtor, including without limitation, any action or proceeding under the Winding Up and Restructuring Act , the Business Corporations Act (Ontario), or other similar legislation whether now or hereinafter in effect;

 

(e)	the Debtor committing or threatening to commit any act of bankruptcy pursuant to or set out under the provisions of the Bankruptcy and Insolvency Act ;

 

(f)	the filing of a petition for a receiving order against the Debtor pursuant to the provisions of the Bankruptcy and Insolvency Act

 

8.   Rights and Remedies

 

Forthwith upon the occurrence of an Event of Default, the security interests, mortgages and charges granted herein shall be enforceable and the Debtor and the Secured Party shall have, in addition to any other rights and remedies provided by law, the rights and remedies of a debtor and a secured party respectively under the PPSA and those provided by this Agreement.  In addition, the Secured Party may take possession of the Collateral and enforce any rights of the Debtor in respect of the Collateral by any method available in or permitted by law and may require the Debtor to assemble the Collateral and deliver or make the Collateral available to the Secured Party at any place as may be designated by the Secured Party.

 

 

9.   Expenses

 

The reasonable costs and expenses of the Secured Party in the preparation, execution and delivery of this Agreement, the registration of this Agreement or of notices, financing statements or other filings in respect thereof, the reasonable costs and expenses of the Secured Party in connection with the preparation or review of waivers, consents, amendments, subordination agreements or other matters pertaining to the subject matter of this Agreement, the reasonable costs and expenses expressly provided for in the PPSA and, in addition thereto, the cost of any insurance, taxes, solicitor's fees, costs and other legal expenses and all other costs, charges and expenses of or incurred (on a scale as between a solicitor and his own client) by the Secured Party in respect of any of the foregoing and in respect of the enforcement of the Obligations, including taking possession, custody, holding, preserving, protecting, repairing, using or operating, collecting, realizing, processing, preparing for disposition and disposing of the Collateral (collectively, the " Expenses ") shall be payable by the Debtor to the Secured Party forthwith upon demand, shall be deemed advanced to the Debtor by the Secured Party, shall bear interest at a rate equal to the Prime Rate (defined below) plus 4% per annum calculated, both before and after demand, maturity, default and judgment, from the date each of the Expenses, respectively, was incurred until fully paid by the Debtor and shall be secured by this Agreement.

 

" Prime Rate " means the annual rate of interest announced from time to time by Toronto Dominion Bank as a reference rate then in effect for determining interest rates on Canadian dollar commercial loans in Canada.

 

The Debtor authorizes the Secured Party to designate, in its sole discretion, any number of years as the registration period in any financing statement or financing change statement filed with respect to this Agreement or any other agreement delivered by the Debtor to the Secured Party (" Designated Period ").

 

The Debtor acknowledges and confirms that:

 

(a)	all registration costs in connection with the filing of the aforesaid financing statements or financing change statements are and shall be reasonable and shall form part of the Expenses;

 

(b)

the designation of the number of years comprising the Designated Period shall not constitute an acknowledgement by or commitment or other obligation of the Secured Party to provide financial assistance (whether by loan, agreement or otherwise) to the Debtor at any time or from time to time during the Designated Period; and

 

(c)	the Secured Party shall be entitled to exercise all of its rights and remedies provided for in this Agreement forthwith upon the occurrence of an Event of Default notwithstanding that such Event of Default may occur prior to the expiration of the Designated Period.

 

10.   Notice of Disposition

 

Unless not required to do so by applicable law, the Secured Party shall give to the Debtor at least 15 days written notice of the Secured Party's intention to dispose of the Collateral.  Such notice may be sent by registered mail to the last known post office address of the Debtor.

 

 

11.   Receiver - Appointment

 

The Secured Party may take proceedings in any court of competent jurisdiction for the appointment of a receiver or a receiver and manager (the " receiver ") of the Collateral or of any part thereof or may by instrument in writing appoint any person to be a receiver of the Collateral or of any part thereof and may remove any receiver so appointed by the Secured Party and appoint another in his stead.

 

12.   Receiver - Powers

 

Any receiver appointed hereunder by instrument in writing shall have power (a) to take possession of the Collateral or any part thereof and, without liability or obligation to the Debtor, to maintain, preserve and protect the same; (b) to carry on or concur in carrying on all or any part of the business or businesses of the Debtor; (c) to borrow money which such receiver, in its sole discretion, determines is required in connection with either or both of the powers provided for in paragraph (a) and (b); and (d) to dispose of the Collateral in whole or in part, and any such disposition may be by public sale (whether by auction, tender or otherwise), private sale, lease or otherwise, and at such time and place and on such terms and for such price and manner of payment thereof, all as such receiver may, in its sole discretion, determine; provided that any such receiver shall be and is deemed to be the agent of the Debtor and the Secured Party shall not in any way be responsible for any misconduct, negligence or nonfeasance of any such receiver.

 

13.   Proceeds of Disposition/Deficiency

 

Any proceeds of any disposition of any of the Collateral shall be applied by the Secured Party firstly on account of the Expenses, and any balance of such proceeds shall be applied by the Secured Party on account of the Obligations (other than the Expenses) in such order of application as the Secured Party may from time to time effect and the same shall not be subject to dispute by the Debtor.  If such proceeds fail to satisfy the Obligations, the Debtor shall be liable for the full amount of the deficiency resulting to the Secured Party.

 

14.   General Provisions

 

(a)

Discharge: The Debtor shall not be discharged from the Obligations by any extension of time, additional advances, renewals, amendments or extensions to this Agreement, any waiver by or failure of the Secured Party to enforce any provision of this Agreement or any other agreement, the taking of further security, releasing security, extinguishment of the security interests, mortgages and charges as to all or any part of the Collateral, or any other act except a release or discharge by the Secured Party of the security interests, mortgages and charges granted hereby upon the full payment and performance of the Obligations, at which time the Secured Party shall, at the Debtor's expense, deliver to the Debtor all necessary discharges and releases of the security interests, mortgages and charges granted hereby.

 

(b)	Other Security:

 

(i)	The security constituted by this Agreement is in addition to and not in substitution for any other security, guarantee or right from time to time held by the Secured Party;

 

(ii)	The Secured Party may realize upon or enforce all or part of any security, guarantee or right from time to time held by it in any order it desires and any realization by any means upon any security, guarantee or right shall not bar realization upon any other security, guarantee or right; and

 

 

(iii)

The taking of any action or proceeding or refraining from so doing or any other dealings with or in respect of any other security, guarantee or right from time to time held by the Secured Party shall not release or affect the security provided for in this Agreement and the taking of the security hereby granted or any proceedings hereunder for the realization of the security hereby granted shall not release or affect any other security, guarantee or right from time to time held by the Secured Party.

 

(c)

Waiver, etc.:  No failure or delay on the part of the Secured Party to exercise any right provided for in or contemplated by this Agreement and no waiver as to an Event of Default hereunder shall operate as a waiver thereof unless made in writing and signed by the Secured Party and, in that event, such waiver shall operate only as a waiver of the right or Event of Default expressly referred to therein.  Nothing in this Agreement and nothing referred to in the Obligations shall preclude any other remedy by action or otherwise for the enforcement of this Agreement or the payment and performance in full of the Obligations.

 

(d)

Secured Party Assignment:  All rights and obligations of the Secured Party hereunder shall be freely assignable in whole or in part without the consent of the Debtor and in any action brought by any assignee to enforce such rights, the Debtor shall not assert against such assignee any claim, defence, right of set-off, or the benefit of any equities which the Debtor now has or may hereafter have against the Secured Party.

 

(e)

Entire Agreement:  This Agreement sets forth the entire intent and understanding of the parties relating to the subject matter hereof and supersedes and replaces all prior agreements and commitments, whether written or oral, made between the parties and all earlier discussions and negotiations between them.  The parties are not relying upon and there are no collateral or other representations, warranties, agreements or covenants made by any of the parties hereto which are not contained herein.

 

(f)

Further Assurances:  Each of the parties hereto shall and will, from time to time and at all times hereafter upon every reasonable written request so to do, make, do, execute and deliver, or cause to be made, done, executed and delivered, all such further papers, acts, deeds, assurances and things as may be necessary or desirable in the opinion of any party or counsel for any party, acting reasonably, for implementing and carrying out more effectually the true intent and meaning of this Agreement including, without limitation, to perfect or better perfect the security interests, mortgages and charges of the Secured Party in the Collateral or any part thereof.

 

(g)

Severability:  In the event that any covenant or provision contained in this Agreement is held to be invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining covenants and provisions shall not be affected or impaired thereby and all such remaining covenants and provisions shall continue in full force and effect.  All covenants and provisions hereof are declared to be separate and distinct covenants or provisions, as the case may be.

 

(h)	Headings:  All headings and titles in this Agreement are for convenience of reference only and shall not affect the interpretation of the terms hereof.

 

(i)

Gender, etc.:  In construing this Agreement, all words and personal pronouns relating thereto shall be read and construed as the number and gender of the party or parties referred to in each case require, and the verb agreeing therewith shall be construed as agreeing with the required word and pronoun.  Words such as "hereunder", "hereto", "hereof", "herein" and other words commencing with "here" shall, unless the context clearly indicates the contrary, refer to the whole of this Agreement and not to any particular paragraph or part thereof.

 

 

(j)

Binding Effect:  All rights of the Secured Party hereunder shall enure to the benefit of its successors and assigns and all obligations of the Debtor hereunder shall bind the Debtor, its successors and assigns.  Each reference to the Secured Party in this Agreement shall be deemed to include a reference to the Secured Party, its successors and assigns and each reference to the Debtor in this Agreement shall be deemed to include a reference to the Debtor, its successors and assigns.

 

(k)	Re Liabilities:  If more than one person executes this Agreement as Debtor, their obligations under this Agreement shall be joint and several.

 

(l)

Governing Law:  This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws in force in the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as an Ontario contract. Each party irrevocably submits to the exclusive jurisdiction of the courts of Ontario with respect to any matter arising hereunder or related hereto.

 

(m)

Notice:  Subject to the specific requirements of the PPSA, any demand, notice, request, consent, approval or other communication required or permitted to be made or given by any party hereto to any other party hereto in connection with this Agreement shall be in writing and may be made or given by personal delivery to such party or by transmittal by facsimile transmission or similar electronic means of communication which produces a paper record to such party at the fax number noted on page 1 of this Agreement or, if a corporation, to a director thereof or, if postal services and deliveries are then operating, by mailing the same by prepaid registered post to such party at its address noted on page 1 of this Agreement or at such other address which the party to whom such communication is being given may have designated by notice given in accordance with the provisions of this paragraph.  Any communication so delivered or transmitted by electronic means of communication shall be deemed to have been given and received on the day of delivery or transmittal, if a business day, or if not a business day, on the business day next following the day of delivery or transmittal, and any communication so mailed shall be deemed to have been given and received on the fourth business day following and exclusive of the date of mailing.  In this paragraph, "business day" means any day except a Saturday, Sunday or statutory holiday in the Province of Ontario.  Either party may give notice in writing to the other in the manner provided in this paragraph of any change of fax number or address of the party giving such notice, and from and after the giving of such notice, the fax number or address therein specified shall be deemed to be the fax number or address of such party for purposes of this paragraph.

 

(n)

Failure to Perfect:  The Secured Party shall not be liable or accountable for any negligence or failure to perfect its security interests, mortgages and charges granted herein, seize, collect, realize, sell or obtain payment for the Collateral or any part thereof and shall not be bound to institute proceedings for the purpose of seizing, collecting, realizing or obtaining possession or payment of the same for the purpose of preserving the rights of the Debtor or any other person, firm or corporation in respect of same.

 

(o)	No Amendment:  This Agreement may not be amended, altered or qualified except by a memorandum in writing signed by all of the parties hereto and any amendment, alteration or qualification hereof shall be null and void and shall not be binding upon any party who has not signed such memorandum.

 

 

(p)

Power of Attorney:  The Secured Party, or any receiver appointed hereunder is hereby irrevocably constituted as the duly appointed lawful attorney of the Debtor in accordance with the Powers of Attorney Act (Ontario), with full power to make, do, execute and deliver all such documents, assignments, acts, matters or things on behalf of the Debtor with the right to use the name of the Debtor whenever and wherever it may be deemed necessary or expedient. The power of attorney hereby granted is a power coupled with an interest and shall survive the dissolution, liquidation, winding-up or other termination of existence of the Debtor.  The Debtor agrees to and does hereby ratify all acts done and all documents executed and delivered by the Secured Party pursuant to the power of attorney hereby granted and the Debtor hereby confirms that the Secured Party and all third parties are entitled to rely upon such ratification.

 

(q)	Time of Essence:  Time shall be strictly of the essence of this Agreement and of every part thereof and no extension or variation of this Agreement shall operate as a waiver of this provision.

 

(r)	Debtor's Receipt:  The Debtor hereby acknowledges receipt of a fully signed copy of this Agreement.

 

IN WITNESS WHEREOF the Debtor has executed this Agreement under its seal and agrees to be bound thereby as of the Effective Date set out above.

 

 

Signed, Sealed and Delivered	)
in the presence of:	)		GILLA INC.
	)
	)
	)		Per: /s/ Ashish Kapoor
	)		Name: Ashish Kapoor
			Title: Chief Financial Officer

 

                                                     

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