Registration No. 333-__________

 

As filed with the Securities and Exchange Commission on September 24, 2015

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

FORM F-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

2304101 Ontario Inc.

(Exact name of registrant as specified in its charter)

 

Canada

7371

Not Applicable

(State or jurisdiction of

(Primary Standard Industrial

(I.R.S. Employer

incorporation or organization)

Classification Code Number)

Identification No.)

 

100 College Street, Suite 302

Toronto, ON M5G 1L5
(416) 435-9112
(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)

 

Scott Woodrow
100 College Street, Suite 302

Toronto, ON M5G 1L5
(416) 435-9112
(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

David Lubin, Esq.
David Lubin & Associates, PLLC
108 S. Franklin Avenue
Valley Stream, New York 11580
Telephone: (516) 887-8200
Facsimile: (516) 887-8250

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and from time to time after the effective date of this registration statement, as determined by the selling shareholders.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨  

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 Title of Class of Securities to be Registered

 

Amount to be Registered

 

 

Proposed Maximum Offering Price Per Share

 

 

Proposed Maximum Aggregate Offering Price

 

 

Amount of Registration Fee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares, no par value

 

 

17,114,915

 

 

$ 0.0409 (1)

 

$ 700,000.02

 

 

$ 81.34

 

Common Shares, no par value

 

 

7,946,210

 

 

$ 0.0409 (1)(2)

 

$ 324,999.98

 

 

$ 37.76

 

Common Shares, no par value

 

 

7,946,210

 

 

$ 0.0818 (3)

 

$ 649,999.97

 

 

$ 75.53

 

Total

 

 

33,007,335

 

 

 

 

 

 

 

1,674,999.90

 

 

$ 194.63

 

___________

(1)

In accordance with Rule 457(a), the offering price has been arbitrarily determined by us and bears no relationship to assets, earnings or other valuation criteria. No current trading market exists for our common shares. No assurance can be given that the shares offered hereby will have a market value or that they may be sold as this, or any price. The selling shareholders may sell our common shares only at a fixed price of $0.0409 per share until such time, if at all, our shares are quoted on the OTC QB (“OTCQB”) and thereafter at prevailing market prices or privately negotiated prices. The fixed price of $0.0409 has been arbitrarily determined as the selling price. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (“FINRA”), nor can there be any assurance that such an application for quotation will be approved.

 

 

(2)

Represents common shares issuable upon the conversion of our outstanding Notes at a conversion price of $0.0409 per share.

 

 

(3)

Represents common shares issuable upon the exercise of warrants by the selling shareholders and calculated pursuant to Rule 457(g) based upon the exercise price of the warrants.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED

 

 
2
 

 

PROSPECTUS

 

2304101 ONTARIO INC.

 
33,007,335 Common Shares, consisting of 17,114,915 shares being offered and sold directly by us, 7,946,210 shares issuable upon the conversion of our outstanding Notes and 7,946,210 shares issuable upon the exercise of warrants by the selling shareholders

 

This prospectus relates to the offering of a minimum of 6,112,470 and a maximum of 11,002,445 our common shares at a fixed price of $0.0409. Should we be successful in selling all of the shares offered, we will receive $450,000 in proceeds before expenses.

 

All subscriptions received from investors will be pursuant to subscription agreements and will be deposited in an escrow account with David Lubin & Associates, PLLC, who will act as our escrow agent for the offering.

 

We intend for the offering of up to 11,002,445 common shares to be sold by our officers and directors who will not be paid any commissions for such sales. A minimum of 6,112,470 common shares (or $250,000) must be sold in the offering. The offering period will commence upon the effectiveness of the registration statement of which this prospectus is a part and will terminate on the earlier of (i) 90 days from the date of this prospectus or the date on which all 11,002,445 common shares have been sold, unless extended or earlier terminated by our board of directors in its sole discretion. In the event that 6,112,470 shares are not sold during the offering period, all proceeds from the sale of the shares will be returned to subscribers, without interest or deduction. Subscriptions are irrevocable once made, and funds will only be returned if the subscription is rejected or if 6,112,470 shares offered are not sold prior to the termination of the offering.

 

This prospectus also relates to the resale, from time to time, of up to 15,892,420 common shares consisting of (i) 7,946,210 common shares issuable upon the exercise of five-year warrants at an exercise price of $0.0818 per share (the “Warrants”) and (ii) 7,946,210 common shares issuable upon the conversion of 4% secured convertible notes at a conversion price of $0.0409 per share (the “Notes”) by the selling shareholders identified in this prospectus, which Warrants and Notes were purchased by the selling shareholders in a private offering pursuant to a Securities Purchase Agreement (“Purchase Agreement”) between each selling shareholder and 2304101 Ontario Inc. (the “Company”), dated July 7, 2015. See the section of this prospectus entitled “Purchase Transaction” for a description of the Purchase Agreement and the section entitled “Selling Shareholders” for additional information about the selling shareholders

 

Such registration does not mean that the selling shareholders will actually offer or sell any of these shares. We will not receive any proceeds from the sales of our common shares by the selling shareholders. We will also not receive any proceeds from the exercise of the Warrants included in this offering to the extent that such Warrants are exercised on a cashless basis according to their terms.

 

The selling shareholders may offer the shares pursuant to this prospectus for resale in a number of different ways through public or private placement transactions and at varying prices. The prices at which the selling shareholders may sell shares will be determined by the prevailing market price for the shares or in privately negotiated transactions. See “Plan of Distribution” for additional information.

 

Our common shares are not traded on any market or securities exchange. The selling shareholders may sell our common shares only at a fixed price of $0.0409 per share until such time, if at all, as our shares are quoted on the OTCQB and thereafter at prevailing market prices or privately negotiated prices. The fixed price of $0.0409 has been arbitrarily determined as the selling price. After the effective date of the registration statement relating to this prospectus, we hope to have a market maker file an application with Financial Industry Regulatory Authority (“FINRA”), for our common shares to be eligible for quotation on the OTCQB. There can be no assurance that a market maker will agree to file the necessary documents with FINRA nor can there be any assurance that such an application for quotation will be approved. We have agreed to bear the expenses relating to the registration of the shares for the selling shareholders.

 

INVESTING IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE SECTION ENTITLED "RISK FACTORS" IN THIS PROSPECTUS BEGINNING ON PAGE 6.

 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). As an emerging growth company, we are eligible for certain reduced public company reporting requirements.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

The date of this prospectus is _________, 2015.

 

 
3
 

 

2304101 ONTARIO INC.

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

Prospectus Summary

 

 

5

 

Risk Factors

 

 

8

 

Identity of Directors, Senior Management and Auditors

 

 

16

 

Capitalization and Indebtedness

 

 

17

 

The Offering

 

 

17

 

Determination of Offering Price

 

 

18

 

Use of Proceeds

 

 

18

 

Dividend Policy

 

 

19

 

Purchase Transaction

 

 

19

 

Selling Shareholders

 

 

24

 

Plan of Distribution

 

 

27

 

Share Capital

 

 

30

 

Material Income Tax Considerations

 

 

33

 

Exchange Controls

 

 

34

 

Interests of Named Experts and Counsel

 

 

35

 

Description of Business

 

 

35

 

Operating and Financial Review and Prospects

 

 

42

 

Foreign Currency Exchange

 

 

45

 

Directors, Senior Management and Employees

 

 

46

 

Security Ownership of Certain Beneficial Owners and Management

 

 

48

 

Certain Relationships and Related Party Transactions

 

 

49

 

Additional Information

 

 

50

 

Expenses of Issuance and Distribution

 

 

50

 

Enforceability of Certain Civil Liabilities and Agent for Service of Process in the United States

 

 

51

 

Indemnification for Securities Act Liabilities

 

 

51

 

Legal Matters

 

 

51

 

Experts

 

 

51

 

Financial Statements

 

F-1

 

 

 
4
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements”. Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, our ability to develop and commercialize new and improved products and services; our ability to raise capital to fund continuing operations; a continued decline in general economic conditions nationally and internationally; decreased demand for our products and services; market acceptance of our products and services; our ability to protect our intellectual property rights; the impact of any infringement actions or other litigation brought against us; competition from other providers and products; changes in government regulation; our ability to complete customer transactions and capital raising transactions; and other factors (including the risks contained in the section of this prospectus entitled “Risk Factors”) relating to our industry, our operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus or incorporated by reference in this prospectus. This summary does not contain all of the information that you should consider in making your investment decision. You should read the entire prospectus carefully, especially the discussion regarding the risks of investing in our securities under the heading “Risk Factors” beginning on page 6 of this prospectus and our financial statements and related notes incorporated by reference in this prospectus, before investing in our securities. In this prospectus, the “Company,” “we,” “us,” and “our” refer to 2304101 Ontario Inc .

 

Overview

 

We were incorporated on October 31, 2011 in the Province of Ontario, Canada and do business as Behavioural Neurological Applications and Solutions. We are a cognitive software development company with a primary focus on the development of software based assessment and remediation tools for children used in the professional assessment and treatment of cognitive disabilities. In December 2011, we entered into a collaboration with Toronto’s Hospital for Sick Children (the “Hospital”) to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific tools, we have developed a content delivery and patient data platform, known as Resource Knowledge Information Access (“RKIA”) that enables content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients.

 

Our focus is on the child and adolescent mental health markets, with an initial focus on children with ADHD. These markets include the ADHD therapeutics market and the cognitive assessment markets with market sizes of over $7 billion and $2 billion, respectively, according to GBI Research. and Marketsandmarkets Research, a global market research firm.

 

 
5
 

   

In the therapeutics market, we have entered into a license agreement with Pear Therapeutics, a US based therapeutics company, developing novel combination therapies referred to as “e-formulations”.

 

The cognitive assessment market is dominated by a small number of competitors, the prominent ones being Pearson Education Limited (“Pearson”) and Multi Health Systems, Inc.

 

From inception, we have has been funded by a combination of investment capital and grant financing totaling approximately $1,100,000 comprised of approximately $630,000 of grant financing and $470,000 of equity financing. While our strategy of synergies with therapeutics and clinical assessment partners significantly defrays our capital requirements, we hope to continue new product and partner development, enhance existing products, enable software as service revenue through RKIA and conduct independent clinical studies for further promotion as independent products and branding.

 

Commercialization of our software products is intended to be achieved through both direct and indirect distribution to clinical and research users. Our cognitive assessment and remediation programs can be utilized as independent tools within a battery of broader methods in the provision of mental health care. We intend to make these tools available to our clinical users either through direct access as part of our RKIA mental health informatics platform, direct subscription, or through distribution partners of mental health assessment and remediation tools.

 

On May 14, 2015, we effectuated a 100,000:1 forward stock split of our common shares.

 

Our corporate headquarters are located at 100 College Street, Suite 213, Toronto, ON M5G 1L58875 and our telephone number is (416) 435-9112.

 

SUMMARY OF THE OFFERING

 

 

The following is a summary of the shares being offered by this prospectus:

 

Common Shares offered by the Company

Up to 17,114,915common shares, no par value, at a fixed price of $0.0409 per share. A minimum of 6,112,470 common shares must be sold.

 

 

 

Common Shares offered by selling shareholders

 

Up to 15,892,420 common shares consisting of 7,946,210 shares issuable upon the exercise of Warrants and 7,946,210 shares issuable upon the conversion of the Notes.

 

 

 

Common Shares outstanding prior to the offering

28,072,366 shares (1)

 

Common Shares to be outstanding after the offering

61,079,701 shares (1)

 

 

 

Use of proceeds

We will not receive any proceeds from the sale of shares of our common shares by the selling shareholders. We will also not receive any proceeds from the exercise of Warrants included in this offering to the extent that such Warrants are exercised on a cashless basis according to their terms.

 

We intend to use the proceeds received, if any, from the sale of the shares for working capital purposes.

Risk Factors

You should carefully read “Risk Factors” in this prospectus for a discussion of factors that you should consider before deciding to invest in our common shares.

 

The number of common shares outstanding is based on 28,072,366 common shares outstanding as of September 21, 2015 and does not include an aggregate of 8,200,000 common shares issuable upon the exercise of stock options.

 

 
6
 

   

Summary Financial Information

 

The following table sets forth and summarizes certain of the Company’s financial information for the years ended December 31, 2014 and 2013 and for the quarterly periods ended June 30, 2015 and 2014. The financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States (“GAAP”), and are expressed in U.S. dollars. This financial information is derived from, and should be read in conjunction with the Company’s financial statements, including the notes thereto. The Company’s Financial Statements for the years ended December 31, 2014 and 2013 have been audited by Turner, Stone & Company.

 

Selected Financial Information

 

 

 

For the year ended December 31, 2014 (audited)

 

 

For the year ended December 31, 2013 (audited)

 

Operating Revenues

 

 

-

 

 

 

28,206

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

452,828

 

 

 

287,111

 

Net Loss

 

 

380,088

 

 

 

221,631

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

211,830

 

 

 

102,848

 

Net Assets

 

 

(626,401 )

 

 

(345,654 )

Total Liabilities

 

 

838,231

 

 

 

448,502

 

Working Capital

 

 

(9,980 )

 

 

91,539

 

Share Capital

 

 

21,550

 

 

1_

 

Common Shares Issued

 

 

13,965,424

 

 

 

13,500,000

 

Dividends Declared

 

 

-

 

 

 

-

 

 

Selected Financial Information

 

 

 

For the six months ended June 30, 2015 (unaudited)

 

 

For the six months ended June 30, 2014, 2013 (unaudited)

 

Operating Revenues

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

133,522

 

 

 

226,119

 

Net Loss

 

 

133,842

 

 

 

166,359

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

116,774

 

 

 

95,490

 

Net Assets

 

 

(225,121 )

 

 

_(601,980)

 

Total Liabilities

 

 

341,894

 

 

 

697,470

 

Working Capital

 

 

(44,738 )

 

 

(63,090 )

Share Capital

 

 

549,948

 

 

 

1

 

Common Shares Issued

 

 

28,072,366

 

 

 

13,500,000

 

Dividends Declared

 

 

-

 

 

 

-

 

 

 
7
 

 

RISK FACTORS

 

An investment in the Company’s common shares involves a high degree of risk. You should carefully consider the risks described below as well as other information provided to you in this prospectus, including information in the section of this document entitled “Forward Looking Statements.” There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common shares could decline, and you may lose all or part of your investment.

  

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

 

Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.

 

We have a very limited operating history on which investors can base an evaluation of our business, operating results and prospects. We have no operating history with respect to commercializing our software applications and products. Consequently, it is difficult to predict our future revenues, if any, and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business.

 

We have only recently begun processes to develop relationships with potential customers and distribution partners. Completion of our cognitive assessment and remediation tools and the further development and commercialization of our products is dependent upon the availability of sufficient funds. This limits our ability to accurately forecast the cost of the development of our products. If the markets and applications of our products do not develop as we expect or develop more slowly than we expect, our business, prospects, financial condition and operating results will be harmed.

 

We have a history of operating losses and expect to continue incurring losses for the foreseeable future.

 

We were incorporated in 2011. We incurred losses from inception through June 30, 2015 of $878,314. We recorded a net loss of $380,088 as of December 31, 2014 and a net loss of $133,842 for the six months ended June 30, 2015. We cannot anticipate when, if ever, our operations will become profitable. We expect to incur significant net losses as we develop and commercialize our products and pursue our business strategy. We intend to invest significantly in our business before we expect cash flow from operations to be adequate to cover our operating expenses. If we are unable to execute our business strategy and grow our business, for any reason, our business, prospects, financial condition and results of operations will be adversely affected.

 

As reflected in the accompanying financial statements for the year ended December 31, 2014, and the six months ended June 30 2015, the Company has no revenues and needs additional cash resources to maintain its operations. These factors raise substantial doubt about our ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. We cannot predict when, if ever, we will be successful in raising additional capital and, accordingly, we may be required to cease operations at any time, if we do not have sufficient working capital to pay our operating costs.

 

 
8
 

   

If we are unable to obtain additional funding, our business operations will be harmed.

 

The Company raised $325,000 through a private placement of convertible notes and warrants in July 2015. As a result of this financing, the Company believes that it will have sufficient cash flows to operate for at least the next 12 months. However, the Company anticipates that it will have to raise additional capital to fund research and development and operations over the next 12 months. To the extent that we are required to raise additional funds to acquire research and facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are currently no commitments or arrangements for other financings. We may be unable to secure such funding when needed in adequate amounts or on acceptable terms, if at all. Any additional equity financing may involve substantial dilution to our then existing shareholders. The inability to raise the additional capital will restrict our ability to develop and conduct business operations.

 

Our independent auditors have expressed their concern as to our ability to continue as a going concern.

 

The Company reported an accumulated deficit of $744,472 and had a stockholders’ deficit of $626,401 at December 31, 2014. As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2014 and 2013 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern without the infusion of significant additional capital. At December 31, 2014, the Company had insufficient operating revenues and cash flow to meet its financial obligations. There can be no assurance that management will be successful in implementing its plans. If we are unable to raise additional financing we may cease operations.

 

If we are unable to keep up with rapid technological changes in our field, we will be unable to operate profitably.

 

Our industry is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render our software or potential products uneconomical or result in products superior to those we develop or that any products or services we develop will be preferred to any existing or newly-developed products.

 

Many of our potential competitors are better established and have significantly greater resources which may make it difficult for us to compete in the markets in which we intend to sell our products.

 

The market for the products we develop is highly competitive. Many of our potential competitors are well established with larger and better resources, longer relationships with customers and suppliers, greater name recognition and greater financial, technical and marketing resources than we have. Increased competition may result in price reductions, reduced gross margins, loss of market share and loss of licensees, any of which could materially and adversely affect our business, operating results and financial condition. We cannot ensure that prospective competitors will not adopt technologies or business plans similar to ours, or develop products which may be superior to ours or which may prove to be more popular. It is possible that new competitors will emerge and rapidly acquire market share. We cannot ensure that we will be able to compete successfully against future competitors or that the competitive pressures will not materially and adversely affect our business, operating results and financial condition.

 

If we lose any of our key management personnel or consultants, we may not be able to successfully manage our business or achieve our objectives.

 

Our future success depends in large part upon the leadership and performance of our management and consultants. The Company’s operations and business strategy are dependent upon the knowledge and business contacts of our executive officers and our consultants. We do not have any employment agreements with management. We have a consulting agreement with Dr. Russell Schachar for clinical advisory and product development services related to our collaboration with the Hospital for the development of our software based treatment for attention deficit and attention deficit and hyperactivity disorder in children. Although, we hope to retain the services of our officer and consultants, if our officer or a consultant should choose to leave us for any reason before we have hired additional personnel, our operations may suffer. If we should lose their services before we are able to engage and retain qualified employees and consultants to execute our business plan, we may not be able to continue to develop our business as quickly or efficiently.

 

In addition, we must be able to attract, train, motivate and retain highly skilled and experienced technical employees in order to successfully develop our business. Qualified technical employees often are in great demand and may be unavailable in the time frame required to satisfy our business requirements. We may not be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of technical personnel or our inability to hire or retain sufficient technical personnel at competitive rates of compensation could impair our ability to successfully grow our business. If we lose the services of any of our personnel, we may not be able to replace them with similarly qualified personnel, which could harm our business.

 

 
9
 

   

Developments or assertions by us or against us relating to intellectual property rights could materially impact our business.

 

We have intellectual property rights relating to the license to our cognitive assessment and rehabilitation software jointly developed with the Hospital and are a party to licensing arrangements.

 

We will attempt to protect proprietary and intellectual property rights to our products through licensing and distribution arrangements although we currently do not have any patents or applications for our products.

 

Litigation may also be necessary in the future to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others or to defend against claims of invalidity. Such litigation could result in substantial costs and the diversion of resources.

 

As we create or adopt new software, we will also face an inherent risk of exposure to the claims of others that we have allegedly violated their intellectual property rights.

 

Our products could infringe on the intellectual property rights of others which may result in costly litigation and, if we do not prevail, could also cause us to pay substantial damages and prohibit us from selling or licensing our products.

 

Third parties may assert infringement or other intellectual property claims against us. We may have to pay substantial damages, including damages for past infringement if it is ultimately determined that our products or technology infringe a third party’s proprietary rights. Further, we may be prohibited from selling or providing products before we obtain additional licenses, which, if available at all, may require us to pay substantial royalties or licensing fees. Even if claims are determined to be without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from our other business concerns. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our business to be harmed and our stock price to decline.

 

If we become a public reporting company we will be subject to extensive financial reporting and related requirements for which our accounting and other management systems and resources may not be adequately prepared.

 

We will become subject to reporting and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 will require us to conduct an annual management assessment of the effectiveness of our internal controls over financial reporting. These reporting and other obligations will place significant demands on our management, administrative, operational and accounting resources. Any failure to maintain effective internal controls could have a negative impact on our ability to manage our business and on our stock price.

 

We may be at risk to accurately report financial results or detect fraud if we fail to maintain an effective system of internal controls.

 

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report that contains an assessment by management on the Company’s internal control over financial reporting in their annual and quarterly reports on Form 10-K and 10-Q. We cannot assure you that significant deficiencies or material weaknesses in our disclosure controls and internal control over financial reporting will not be identified in the future. Also, future changes in our accounting, financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our financial reporting, which may adversely affect our stock price.

 

 
10
 

   

The market for our products is immature and volatile and if it does not develop, or if it develops more slowly than we expect, the growth of our business will be harmed.

 

Software-based systems for mental health is a new and unproven market, and it is uncertain whether it will achieve and sustain demand and market adoption. Our success will depend to a substantial extent on the willingness of customers and healthcare professionals to use our systems, as well as on our ability to demonstrate the value of our software and products to customers and to develop new applications that provide value to customers and users. If customers and users do not perceive the benefits of our products, then our market may not develop at all, or it may develop more slowly than we expect, either of which could significantly adversely affect our operating results. In addition, we have limited insight into trends that might develop and affect our business. We might make errors in predicting and reacting to relevant business, legal and regulatory trends, which could harm our business. If any of these events occur, it could materially adversely affect our business, financial condition or results of operations.

 

If our security measures are breached and unauthorized access to a customer’s data are obtained, our products may be perceived as insecure, we may incur significant liabilities, our reputation may be harmed and we could lose sales and customers.

 

Our products involve the storage and transmission of customers’ proprietary information, as well as protected health information, or PHI, which is regulated under the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations, collectively HIPAA. Because of the extreme sensitivity of this information, the security features of our product are very important. If our security measures, some of which will be managed by third parties, are breached or fail, unauthorized persons may be able to obtain access to sensitive data, including HIPAA-regulated protected health information. A security breach or failure could result from a variety of circumstances and events, including third-party action, employee negligence or error, malfeasance, computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, telecommunication failures, user errors, and catastrophic events.

 

If our security measures were to be breached or fail, our reputation could be severely damaged, adversely affecting customer or investor confidence, customers may curtail their use of or stop using our products and our business may suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for violation of HIPAA and significant costs for remediation and for measures to prevent future occurrences. In addition, any potential security breach could result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to customers or other business partners in an effort to maintain the business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident.

 

We plan to outsource important aspects of the storage and transmission of customer information, and thus rely on third parties to manage functions that have material cyber-security risks. These outsourced functions include services such as software design and product development, software engineering, database consulting, data-center security, IT, network security and Web application firewall services. We attempt to address these risks by requiring outsourcing subcontractors who handle customer information to confirm compliance with HIPAA and to provide indemnification. However, we cannot assure you that these measures will adequately protect us from the risks associated with the storage and transmission of customers proprietary and protected health information.

 

We may experience cyber-security and other breach incidents that may remain undetected for an extended period. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against us, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition, in the event that our customers authorize or enable third parties to access their data or the data of their employees on our systems, we cannot ensure the complete integrity or security of such data in our systems as we would not control access. If an actual or perceived breach of our security occurs, or if we are unable to effectively resolve such breaches in a timely manner, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers.

 

 
11
 

   

If we fail to comply with applicable health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers to work with us.

 

Once our products are deployed, we are subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA established uniform federal standards for certain “covered entities,” which include health care providers and health plans, governing the conduct of specified electronic health care transactions and protecting the security and privacy of protected health information, or PHI. The Health Information Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010, makes HIPAA’s privacy and security standards directly applicable to “business associates,” which are independent contractors or agents of covered entities that create, receive, maintain, or transmit PHI in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA’s requirements and seek attorney’s fees and costs associated with pursuing federal civil actions.

 

Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us or divert application of our resources from other purposes, any of which could harm our business and operating results.

 

Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter technical obstacles, and it is possible that we discover additional problems that prevent our proprietary applications from operating properly. We are currently implementing software with respect to a number of new applications and services. If our software does not function reliably or fails to achieve client expectations in terms of performance, clients could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and impair our ability to attract or maintain clients.

 

Moreover, data services are complex as those we offer have in the past contained, and may in the future develop or contain, undetected defects or errors. Material performance problems, defects or errors in our existing or new software and applications and services may arise in the future and may result from interface of our offering with systems and data that we did not develop and the function of which is outside of our control or undetected in our testing. These defects and errors and any failure by us to identify and address them could result in loss of revenue or market share, diversion of development resources, injury to our reputation and increased service and maintenance costs. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating results.

 

We depend on data centers operated by third parties for our products, and any disruption in the operation of these facilities could adversely affect our business.

 

We plan to provide our products through a third-party data center. While we will control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. The owners of our data centers have no obligation to renew agreements with us on commercially reasonable terms, or at all. If we are unable to renew any such agreements we may enter into on commercially reasonable terms, or if our data center operator is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.

 

Problems faced by our third-party data center locations could adversely affect the experience of our customers. The operators of the data centers could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by the operators of the data centers or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service levels at our data centers or cause such data centers and systems to fail. Any changes in third-party service levels at our data centers or any disruptions or other performance problems with our products could adversely affect our reputation or result in lengthy interruptions in our services. Interruptions in our services might reduce our revenue, cause us to issue refunds to customers for prepaid and unused subscriptions, subject us to potential liability or adversely affect our renewal rates.

 

 
12
 

   

If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.

 

As our head office and operations are primarily based in Canada, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses in Canadian dollars. Fluctuations in the exchange rates between the U.S. dollar and the Canadian dollar could result in the dollar equivalent of such expenses being higher. This could have a negative impact on our reported results of operations. Although we may in the future decide to undertake foreign exchange hedging transactions to cover a portion of our foreign currency exchange exposure, we currently do not hedge our exposure to foreign currency exchange risks.

 

We may not be in compliance with rules and regulations of the U.S. Food and Drug Administration (the “FDA”) should they become applicable to any products we develop in the future.

 

While our products are not currently regulated by the FDA, the FDA may decide to regulate our products in the future. While we make all efforts to conduct our activities and clinical trials as if we are a regulated entity, there is no guarantee that our methods and procedures will satisfy regulatory requirements, should they exist in the future. Any future regulation could subject us to potential liability if we were deemed to be non-compliant with such rules and regulations.

 

RISKS ASSOCIATED WITH OUR COMMON SHARES AND COMPANY

 

The issuance of shares upon conversion of the Notes and exercise of the Warrants and options will cause immediate and substantial dilution to our existing shareholders.

 

As of September 21, 2015, there are currently 7,946,210 common shares issuable upon the conversion of the Notes, options to purchase an aggregate of 8,200,000 common shares and warrants to purchase an aggregate of 7,946,210 common shares outstanding. The issuance of shares upon conversion of the Notes, and exercise of warrants and options will result in substantial dilution to the interests of other shareholders since the security holders may ultimately convert or exercise their securities and sell the full amount issuable upon conversion or exercise.

 

Our common shares are subject to the "penny stock" rules of the SEC and we have no established market for our securities, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks; and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (i) sets forth the basis on which the broker or dealer made the suitability determination; and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.

    

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

 
13
 

   

We are a “foreign private issuer”, and you may not have access to the information you could obtain about us if we were not a “foreign private issuer”.

 

We are considered a "foreign private issuer" under the Securities Act of 1933, as amended. As a foreign private issuer we will not have to file quarterly reports with the SEC nor will our directors, officers and 10% stockholders be subject to Section 16(b) of the Exchange Act. As a foreign private issuer we will not be subject to the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation FD does not apply to non-U.S. companies and will not apply to us. Accordingly, you may not be able to obtain information about us as you could obtain if we were not a “foreign private issuer”.

 

Because the majority of our assets and of our officers and directors are located outside the United States, it may be difficult for an investor to enforce within the United States any judgments obtained against us or any of our officers and directors.

 

All of our assets are presently located outside of the United States and we do not currently maintain a permanent place of business within the United States. In addition, some of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result, it may be difficult for an investor to effect service of process or enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. There is even uncertainty as to whether the Canadian courts would have jurisdiction to hear original actions brought in Canada against us or our directors and officers predicated upon the securities laws of the United States or any state thereof.

 

Because we do not intend to pay any cash dividends on our common shares, our shareholders will not be able to receive a return on their shares unless they sell them .

 

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them at a price higher than that which they initially paid for such shares.

  

The market price of our common shares is subject to fluctuation.

 

The market prices of our shares may fluctuate significantly in response to factors, some of which are beyond our control, including:

 

 

The announcement of new products by our competitors

 

 

 

 

The release of new products by our competitors

 

 

 

 

Developments in our industry or target markets

 

 

 

 

General market conditions including factors unrelated to our operating performance

 

Recently, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme market volatility in the price of our common shares which could cause a decline in the value of our shares.

 

 
14
 

   

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our shareholders have limited protections against interested director transactions, conflicts of interest and similar matters.

 

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange, the Amex Equities Exchanges and NASDAQ, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges or the NASAQ. Because we will not be seeking to be listed on any of the exchanges, we will not be presently required to comply with many of the corporate governance provisions.

 

Because our directors are not independent, we do not currently have independent audit or compensation committees. As a result, the directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our shareholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

 

Our officer and directors own a substantial amount of our common shares and, therefore, exercise significant control over our corporate governance and affairs which may result in their taking actions with which other shareholders do not agree.

 

Our executive officer and directors and their affiliates control approximately 68.66% of our outstanding common shares. These shareholders, if they act together, may be able to exercise substantial influence over the outcome of all corporate actions requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions, which may result in corporate action with which other shareholders do not agree. This concentration of ownership may also have the effect of delaying or preventing a change in control which might be in other shareholders’ best interest but which might negatively affect the market price of our common shares.

 

Our authorized capital consists of an unlimited number of shares of one class designated as common shares. We may, in the future, issue additional common shares, which would reduce investors’ percent of ownership and may dilute our share value.

 

Our Articles of Incorporation authorizes the issuance of an unlimited number of our common shares, no par value, of which 28,072,366 shares are currently issued and outstanding. The future issuance of common shares may result in substantial dilution in the percentage of our common shares held by our then existing shareholders. We may value any common shares issued in the future on an arbitrary basis. The issuance of common shares for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and may have an adverse effect on any trading market of our common shares.

 

Offers or availability for sale of a substantial number of shares of our common shares may cause the price of our common shares to decline.

 

If our shareholders sell substantial amounts of our common shares in the public market, including shares issued in the offering upon the effectiveness of the registration statement of which this prospectus forms a part, or upon the expiration of any statutory holding period, under Rule 144, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common shares could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

 
15
 

   

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

 

For so longas we are an emerging growth company, we will not be required to:

 

 

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

 

 

 

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

 

 

 

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

 

 

 

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation to median employee compensation.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

Until such time, however, we cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.

 

Since we have elected under Section 107 of the JOBS Act to use the extended transition period with respect to complying with new or revised accounting standards, our financial statements may not be comparable to companies that comply with public company effective dates making it more difficult for an investor to compare our results with other public companies.

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 102(b)(2)(B) of the Act for complying with new or revised accounting standards. In other words, as an emerging growth company we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND AUDITORS

 

Set forth below is the name and business address of the Company’s directors, senior management, and auditors.

 

Directors and Senior Management. Our board of directors consists of Scott L. Woodrow, David Stefansky and Jesse Kaplan. Our sole officer is Scott L. Woodrow, who is our President and Chief Executive Officer. The business address of our officers and directors is c/o 2304101 Ontario Inc., 100 College Street, Suite 302, Toronto, ON M5G 1L5.

 

Auditors. Our auditors are Turner, Stone & Company, 12700 Park Central Drive, Suite 1400, Dallas, Texas 75251.

 

 
16
 

   

CAPITALIZATION AND INDEBTEDNESS

 

The following table sets forth our capitalization as of December 31, 2014 and June 30, 2015. You should read this table in conjunction with ''Operating and Financial Review and Prospects'' and our financial statements and the notes thereto, included elsewhere in this prospectus. Amounts below are presented in accordance with U.S. GAAP and are stated in US dollars.

 

 

 

December 31, 2014 (audited)

 

 

June 30, 2015(unaudited)

 

 

 

Number of Securities

 

 

Amount

 

 

Number of Securities

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

 

 

$ 616,421

 

 

 

 

 

 

0

 

Common shares , no par value per share; unlimited authorized;

 

 

13,965,424

 

 

 

 

 

 

 

28,072,366

 

 

 

 

 

Total shareholders’ equity (deficit)

 

 

 

 

 

($626,401)

 

 

 

 

 

 

 

 

 

 

Other than its outstanding convertible loan agreements, and the repayable amounts owing under its development grant with the CIIRDF described in the Description of Business section of this prospectus, the Company has no debt. As of December 31, 2014 we had $160,513 in accounts payable and $221,810 in accrued liabilities. As of June 30, 2015 we had $150,948 in accounts payable and $161,512 in accrued liabilities, all of which is current and unsecured.

 

The information set forth in the foregoing table excludes 7,946,210 common shares issuable upon the exercise of the Warrants at an exercise price of approximately $0.0818 per share, 7,946,210 common shares issuable upon the conversion of the Notes at a conversion price of $0.0409 and 8,200,000 common shares issuable upon the exercise of stock options at an exercise price of $0.00001 per share.

 

THE OFFERING

 

This prospectus relates to (i) the offering of a minimum of 6,112,470 common shares and a maximum of 11,002,470 common shares at a fixed price of $0.0409 and (ii) the resale, from time to time, of up to 15,892,420 common shares consisting of (a) 7,946,210 shares issuable upon the exercise of five-year warrants at an exercise price of $0.0818 per share and (b) 7946,210 shares issuable upon the conversion of the Notes at a conversion price of $0.0409 per share by the selling shareholders identified in this prospectus, which shares were purchased by the selling shareholders in a private offering pursuant to the Purchase Agreement between each selling stockholder and the Company. See the section of this prospectus entitled “Purchase Transaction” for a description of the Purchase Agreement and the section entitled “Selling Shareholders” for additional information about the selling shareholders. Each issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

 

We intend to use any such proceeds received in the offering for working capital purposes. We have agreed to bear the expenses relating to the registration of the shares for the selling shareholders.

 

The offering period will commence upon the effectiveness of the registration statement of which this prospectus is a part and will terminate on the earlier of (i) 90 days from the date of this prospectus or the date on which all 11,002,445 common shares have been sold, unless extended or earlier terminated by our board of directors in its sole discretion. In the event that 6,112,470 shares are not sold during the offering period, all proceeds from the sale of the shares will be returned to subscribers, without interest or deduction. Subscriptions are irrevocable once made, and funds will only be returned if the subscription is rejected or if 6,112,470 shares offered are not sold prior to the termination of the offering.

 

 
17
 

 

DETERMINATION OF OFFERING PRICE

 

The offering price of the shares has been determined arbitrarily by us. The price does not bear any relationship to our assets, book value, earnings, or other established criteria for valuing a privately held company. [In determining the number of shares to be offered and the offering price, we took into consideration our cash on hand and the amount of money we would need to implement our business plan.][ Because we have no significant operating history and have not generated any material revenues to date, the price of our common shares is not based on past earnings, nor is the price of our common shares indicative of the current market value of the assets owned by us. No valuation or appraisal has been prepared for our business and potential business expansion. Our common shares are presently not traded on any market or securities exchange. Accordingly, the offering price should not be considered an indication of the actual value of our common shares.

 

USE OF PROCEEDS

 

Our offering is being made on a self-underwritten basis. The offering price per share is $0.0409. A minimum of 6,112,470 common shares, or $250,000 must be sold, in the offering and we are offering up to a maximum of 11,002,445 common shares, or $450,000.

 

The following table sets forth the uses of proceeds assuming the sale of the 6,112,470 minimum number of shares and the 11,002,445 maximum number of shares offered for sale. There is no assurance that we will raise the full $450,000 being offered.

 

 

 

$250,000

 

 

$450,000

 

 

 

 

 

 

 

 

 

 

Legal and accounting fees

 

$ 60,000

 

 

$ 60,000

 

Human resources

 

 

 

 

 

 

 

 

Clinical

 

 

50,000

 

 

 

85,000

 

Software development

 

 

70,000

 

 

 

150,000

 

Business development

 

 

60,000

 

 

 

130,000

 

Rent and Overhead

 

 

10,000

 

 

 

25,000

 

 

The above amounts are estimated costs. Net proceeds will be used for working capital purposes.

 

We will not receive any proceeds from the sales of our common shares by the selling shareholders. We will also not receive any proceeds from the exercise of the Warrants included in this offering to the extent that such Warrants are exercised on a cashless basis according to their terms.

 

We have agreed to bear the expenses relating to the registration of the shares for the selling shareholders.

 

 
18
 

 

DIVIDEND POLICY

 

We have not declared or paid dividends on our common shares and we do not anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our board of directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the board of directors. There are no contractual restrictions on our ability to declare or pay dividends.

 

PURCHASE TRANSACTION

 

Purchase Agreement

 

On July 7, 2015, we entered into the Purchase Agreement with the selling shareholders pursuant to which we agreed to sell a minimum of $320,000 and a maximum of $770,000 of Notes and Warrants pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. An aggregate of $325,000 of Notes and Warrants was sold, representing an aggregate of 7,946,210 common shares issuable upon the conversion of the Notes and an aggregate of 7,946,210 issuable upon the exercise of the Warrants which are being offered pursuant to this prospectus. The proceeds received by us under the Purchase Agreement are expected to be used primarily for human resources (clinical, software development, business development and legal and accounting expenses and general corporate purposes as described further in this prospectus.

 

If the maximum amount of Notes are not sold and within 180 days of July 7, 2015, and a registration statement on Form F-1 is declared effective by the SEC and our common shares are listed or quoted on a trading market (a “Going Public Event”) a subsequent closing will occur within 10 days of the Going Public Event (“Subsequent Closing”) entitling each purchaser in the initial closing to purchase common shares in a pro rata amount (based upon such purchaser’s initial purchase) of the difference between the amount sold in the initial closing and the maximum of $770,000, up to $250,000.

 

Under the Purchase Agreement, if the Company fails to timely remove restrictive legends or convert shares underlying the Notes in accordance with the terms of the Purchase Agreement, a purchaser, the Company is required to pay liquidated damages in the amount of $10 per trading day for each $1,000 of conversion shares or warrant shares delivered for removal of the restrictive legend or conversion.

 

If the Company fails to deliver Notes, Warrants, common shares issuable thereunder or common shares in connection with a Subsequent Closing as required pursuant to the Purchase Agreement or the Note, and the Purchaser buys common shares to deliver in satisfaction of a sale by such purchaser of common shares which the purchaser was entitled to receive in unlegended form from the Company, the Company is required to pay liquidated damages, in cash, in the amount by which (A) the purchaser’s purchase price (including brokerage commissions, if any) for the shares so purchased exceeds (B) the aggregate purchase price of the shares delivered to the Company for reissuance as unlegended shares or as are required to be delivered pursuant to the Note, as the case may be, together with interest thereon at a rate of 15% per annum accruing until paid in full.

 

At any time commencing on the occurrence of a Going Public Event while the Notes and Warrants are outstanding, the Company fails to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) the Company will be required to pay liquidated damages, in cash, an amount equal to 1% of the aggregate principal amount of Notes and accrued interest thereon on the day of a Public Information Failure and on every 30th day thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the purchasers to transfer the shares pursuant to Rule 144. If the Company fails to timely make such payments in accordance with the terms of the Purchase Agreement, such payments will bear interest at the rate of 1.5% per month until paid in full.

 

 
19
 

   

While the Notes and Warrants are outstanding, without the prior written approval of the purchasers holding at least a majority of the then outstanding securities purchased under the Purchase Agreement, the Company may not enter into any equity line of credit or similar agreement, or issue any common stock, floating or variable priced equity linked instruments or any of the foregoing or equity with price reset rights or issue any equity or common share equivalents (subject to adjustment for stock splits, pro rata equity distributions, dividends, and recapitalizations). The Company must also maintain its property, insurance coverage and corporate existence during such time.

 

The Purchase Agreement also requires that on or before 180 days after July 7, 2015, (i) a registration statement on Form F-1 registering the underlying shares held by the selling shareholders will be declared effective by the SEC, and (ii) its common shares will be listed for trading or quotation.

 

Until the occurrence of a Going Public Event, the Company will not incur an indebtedness without the consent of the purchasers holding a majority of the then outstanding securities purchased under the Purchase Agreement.

 

While the Notes and Warrants are outstanding, the board of directors of the Company will consist of no more than three members, one of which will be appointed by a majority of the then outstanding securities purchased under the Purchase Agreement.

 

While the Notes and Warrants are outstanding, upon any proposed subsequent financing by the issuance by the Company of common shares or common share equivalents, other than (i) a rights offering to all holders of our common shares or (ii) an Exempt Issuance (as such term is defined in the Purchase Agreement), the purchasers have the right, in accordance with the procedures set forth in the Purchase Agreement, to participate in such subsequent financing, pro rata to each other purchaser in proportion to their subscription amounts on the same terms, conditions and price provided for in the subsequent financing, unless the subsequent financing is an underwritten public offering.

 

From and after the occurrence of a Going Public Event, the Company may not effect any exercise of rightsgrantedto a purchaser in a subsequent financing to the extent that after giving effect to such exercise, the purchaser (together with the purchaser’s affiliates, and any others acting as a group together with the purchaser or any of the purchaser’s affiliates), would beneficially own in excess of4.99% of the common shares outstanding immediately after giving effect to such exercise, or would beneficially own in excess of 9.99% upon not less than 61 days’ prior notice to the Company (“Ownership Limitation”).

 

Notes

 

In connection with the Purchase Agreement, on July 7, 2015, we issued an aggregate of $325,000 principal amount of Notes to seven investors which Notes mature on July 7, 2017. The Notes are secured by the assets of the Company pursuant to a security agreement, dated July 7, 2015, between the Company and Jesse Kaplan, as collateral agent for the investors. The Notes accrue interest, compounded monthly, at the rate of 4%, which interest is payable on each January 1st and July 1st during the term of the Note, commencing January 1, 2016. The Notes are convertible, in whole or in part, into common shares at a conversion price of $0.0409 per share, subject to reduction to $0.01 after one year from issuance if a Going Public Event has not occurred. The conversion price is also subject to adjustment in accordance with the Notes in the event the Company pays a stock dividend or makes a distribution in common shares, or subdivides, combines or re-classifies its shares.

 

If the Company fails to timely deliver shares issuable upon conversion of the Notes in accordance with the terms of the Note, the holder is entitled to liquidated damages in the amount of $10 per business day for each $1,000 of Notes converted until delivered.

 

 
20
 

   

If the Company fails to timely deliver conversion shares in accordance with the terms of the Note and the holder is required to purchase common shares to deliver in satisfaction of a sale by the holder of the conversion shares which the holder was entitled to receive upon conversion, the Company must pay in cash to the holder the amount by which (x) the holder’s purchase price (including any brokerage commissions) for the common shares so purchased exceeds (y) the product of (1) the aggregate number of common shares that the holder was entitled to receive upon conversion multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and at the option of the holder, either reissue (if surrendered) the Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the holder the number of common shares that would have been issued if the Company had timely complied with its delivery requirements under the Note.

 

The Company is required to, at all times, reserve not less than 150% of the aggregate number of common shares issuable upon the conversionof the then outstanding principal amount of the Note and accrued interest through the maturity date of the Note.

 

From and after the occurrence of a Going Public Event, the Company may not effect any conversion of the Note, and a holder may not convert any portion of the Note, to the extent that after giving effect to the conversion, the holder (together with the holder’s affiliates, and any others acting as a group together with the holder or any of the holder’s affiliates) would exceed the Ownership Limitation described above.

 

If, at any time while the Notes are outstanding, the Company makes subsequent equity sales or sells or grants any option to purchase or to reprice, or otherwise disposes of or issues common shares entitling a third party to acquire common shares at a price per share that is lower than the then conversion price, the conversion price will be reduced (except with respect to certain Exempt Issuances as defined in the Purchase Agreement) to such lower price.

 

If the Company makes any subsequent rights offerings and grants, issues or sells any common share equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of common shares (the “Purchase Rights”), the holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the holder could have acquired if the holder had held the number of common shares acquirable upon complete conversion of the Note provided, to the extent that the holder’s right to participate in any such Purchase Right would result in the holder exceeding the Ownership Limitation described above, the holder will not be entitled to participate in such Purchase Right to such extent and such Purchase Right shall be held in abeyance until such time, if ever, as its right thereto would not result in exceeding such Ownership Limitation.

 

If, at any time while the Note is outstanding, the Company engages in any Fundamental Transaction, as described in the Note, including any merger or consolidation, sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets, purchase offer, tender offer or exchange offer, any reclassification, reorganization or recapitalization or any compulsory share exchange, stock or share purchase agreement or other business combination, then, upon any subsequent conversion of the Note, the holder has the right to receive for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of common shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such Fundamental Transaction.

 

Provided certain conditions are met, including the effectiveness of a registration statement and the listing and trading of the common shares on a trading market, unless waived by the holder of a majority of the holders of the outstanding Notes, the outstanding principal amount and any accrued interest thereon will mandatorily convert into common shares upon the occurrence of the Going Public Event at the then applicable conversion price, provided a Subsequent Closing occurs.

 

For so long as the Note is outstanding, except in connection with an Exempt Issuance, the holder may participate in any offering of the Company’s common shares on the same terms and conditions as any other subscriber, investor or participant in such offering and apply all or some of the amounts outstanding on the Note as payment for the securities to be acquired pursuant to such offering.

 

As long as the Notes are outstanding, other than with the consent of the holders of at least 51% of principal amount of the then outstanding Notes, the Company may not (a) other than for certain permitted indebtedness, as described in the Notes, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness;(b) other than for certain permitted liens as described in the Notes, enter into, create, incur, assume or suffer to exist any liens or encumbrances on any of its property or assets or interest therein or income or profits therefrom; (c) amend its charter documents, in any manner that materially and adversely affects any rights of the holders; (d) repay, repurchase or offer to repay, repurchase or otherwise acquire any of its common shares; (e) redeem, defease, repurchase, repay or make any payments in respect of, any indebtedness; (f) pay cash dividends or distributions on any of its equity securities; (g) enter into any transaction with any affiliate which would be required to be disclosed in any public filing with the SEC, unless on an arm’s-length basis and approved by a majority of the Company’s disinterested directors; or (h) enter into any agreement with respect to any of the foregoing.

 

 
21
 

 

The following constitute Events of Default under the Note:

 

(i)

default in the payment of the principal, interest or liquidated damages and other amounts owing on any Note, when due and payable and not cured in accordance with the Note;

   
(ii)

fail to observe or perform any other covenant or agreement in the Notes not cured within the earlier of 10 business days (A) after notice of such failure and (B) after the Company has become or should have become aware of such failure;

   
(iii)

default or event of default (subject to any grace or cure period) under any related transaction documents or other material agreement, lease, document or instrument to which the Company is obligated;

   
(iv)

any representation or warranty made in the Note or any related transaction documents, or statement, report, financial statement or certificate that is untrue in any material respect;

   
(v)

the Company is subject to a Bankruptcy Event as defined in the Note;

   
(vi)

the Company defaults on any of its obligations under any Indebtedness as such term is defined in the Note;

   
(vii)

a change of control or Fundamental Transaction occurs or the Company agrees to sell or dispose of in excess of 30% of its assets;

   
(viii)

subsequent to a Going Public Event, the Company does not meet the current public information requirements under Rule 144;

   
(ix)

The Company fails to timely deliver shares in accordance with the terms of the Note;

   
(x)

any person breaches any lockup agreement delivered pursuant to the Purchase Agreement;

 

(xi)

any monetary judgment, writ or similar final process entered or filed against the Company, its property or assets for more than $50,000 that remains unvacated, unbonded or unstayed for 45 days;

 
(xii)

any dissolution, liquidation or winding up by the Company of a substantial portion of its business;

 
(xiii)

cessation of operations by the Company;

 
(xiv)

failure of the Company to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets necessary to conduct its business, not cured with twenty days after written notice thereof;

 
(xv)

subsequent to 120 days after a Going Public Event, an event resulting in the common shares not being listed or quoted or notification from a trading market that the Company is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty days;

 
(xvi)

a SEC or judicial stop trade order or suspension;

 
(xvii)

failure by the Company to notify a holder of any material event of which the Company is obligated to notify the holder pursuant to the terms of the Note or other transaction documents;

 
(xviii)

a default by the Company of a material term, covenant, warranty or undertaking of any other agreement to which the Company and Holder are parties, or the occurrence of an event of default under any such other agreement which is not cured after any required notice and/or cure period;

 
(xix)

the occurrence of an Event of Default under any other Note; or

 
(xx)

any material provision of any transaction document ceases to be valid, binding or enforceable against the Company, or the validity or enforceability is contested by the Company, or a proceeding shall be commenced by the Company or any governmental authority seeking to establish the invalidity or unenforceability thereof, or the Company denies in writing that it has any liability or obligation purported to be created under any transaction document.

 

 
22
 

 

Upon an Event of Default, at the holder’s option, liquidated damages and other amounts owing shall become immediately due and payable (up to the outstanding principal amount of the Note) in cash at a rate equal to the sum of (a) 125% of the outstanding principal amount of the Note and (b) all other amounts, costs, expenses and liquidated damages due on the Note. Commencing on the maturity date of the Note and five days after the occurrence of an Event of Default, interest on the Note shall accrue at the lesser of 15% per annum or the maximum rate permitted under applicable law.

 

Warrants

 

In connection with the Purchase Agreement, on July 7, 2015, we issued Warrants to purchase an aggregate of 7,946,210 common shares at an exercise price of $0.0818 per share to seven investors for five years from the date of issuance. The Warrants may be exercised on a cashless basis, commencing six months from the date of issuance at a price determined based upon the volume weighted average price of the Company’s common shares on the day before the date of exercise. In addition, the Warrant will be automatically exercised via cashless exercise on its expiration date.

 

If the Company fails to timely deliver common shares issuable pursuant to a Warrant exercise and if after such date the holder is required to purchase common shares to deliver in satisfaction of a sale by the holder of the warrant shares which the Holder anticipated receiving upon such exercise, the Company shall (A) pay in cash to the holder the amount by which (x) the holder’s purchase price (including brokerage commissions, if any) for the common shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of warrant shares that the Company was required to deliver to the holder in connection with the exercise (2) the price at which the sell order giving rise to such purchase obligation was executed, and at the option of the holder, either reinstate the portion of the Warrant and equivalent number of warrant shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the holder the number of common shares that would have been issued had the Company timely complied with its exercise and delivery obligations.

 

The Company shall not effect any exercise of the Warrant, and a holder shall not have the right to exercise any portion of the Warrant, to the extent that after giving effect to such exercise, the holder (together with the holder’s affiliates, and others Persons acting as a group together with the holder or any of the holder’s affiliates) would beneficially own in excess of the Ownership Limitation.

 

The number of shares issuable upon the exercise of the Warrant is subject to adjustment in accordance with the terms of the Warrant in the event the Company pays a stock dividend or makes a distribution in common shares, or subdivides, combines or re-classifies its shares.

 

If, at any time while the Warrant is outstanding, the Company makes subsequent equity sales or sells or grants any option to purchase or to reprice, or otherwise disposes of or issues common shares entitling a third party to acquire common shares at a price per share that is lower than the exercise price of the Warrant, the exercise price will be reduced (except with respect to certain Exempt Issuances as defined in the Purchase Agreement) to such lower price and the number of warrant shares issuable will be increased such that the aggregate exercise price payable, after taking into account the decrease in the exercise price, will equal the aggregate exercise price prior to such adjustment.

 

If the Company makes any subsequent rights offerings and grants, issues or sells any Purchase Rights, the holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the holder could have acquired if the holder had held the number of common shares acquirable upon complete exercise of the Warrant provided, to the extent that the holder’s right to participate in any such Purchase Right would result in the holder exceeding the Ownership Limitation, the holder will not be entitled to participate in such Purchase Right to such extent and such Purchase Right shall be held in abeyance until such time, if ever, as its right thereto would not result in exceeding such Ownership Limitation.

 

If the Company declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of common shares (a "Distribution"), at any time after the issuance of the Warrant, the holder is entitled to participate in such Distribution to the same extent that the holder would have participated therein if the holder had held the number of common shares acquirable upon complete exercise of the Warrant provided, the holder will not be entitled to participate in such Distribution in excess of its Ownership Limitation and the portion of such Distribution in excess will be held in abeyance until such time, if ever, as its right thereto would not result in the holder exceeding the Ownership Limitation.

 

 
23
 

 

If, at any time while the Warrant is outstanding, the Company engages in a Fundamental Transaction, as described in the Warrant, including any merger or consolidation, sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets, purchase offer, tender offer or exchange offer, any reclassification, reorganization or recapitalization or any compulsory share exchange, stock or share purchase agreement or other business combination, then, upon any subsequent conversion of the Note, the holder has the right to receive for each conversion share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the number of common shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such Fundamental Transaction, upon any subsequent conversion of the Warrant, the holder has the right to receive for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of common shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such Fundamental Transaction.

 

Registration Rights Agreement

 

In connection with the Purchase Agreement, we entered into a registration rights agreement, dated July 7, 2015, with each of the selling shareholders (“Registration Rights Agreement”) pursuant to which we are required to file a registration statement covering the resale of “registrable securities” held by the selling shareholders on Form F-1 with the SEC no later than 75 days after the closing of the sale of the Notes and Warrants and have such registration statement declared effective by the SEC no later than 75 days from the date of filing. Registrable securities as defined in the Registration Agreement, includes common shares issuable upon conversion of the Notes, in connection with any anti-dilution provisions, upon exercise of the Warrants, upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, or the common shares issuable in connection with a Subsequent Closing). The Company must maintain the effectiveness of the Registration Statement until all registrable securities are sold or, commencing 36 months after the issuance of the Notes and Warrants, may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144.

 

If the registration statement is not timely filed with the SEC, the Company fails to file a timely acceleration request or respond to SEC comments or the registration statement is not declared effective within 75 days of filing, or after the effectiveness, the registration statement does not remain effective or the selling shareholders are not permitted to use the prospectus to resell such registrable securities for more than fifteen days or more than an aggregate of thirty days during any 12-month period, on each such occurrence and each month thereafter until cured, the Company is required to pay liquidated damages, in cash equal to 2% of the aggregate purchase price paid for the registrable securities . If the Company fails to pay any such liquidated damages within seven days, the Company will be required to pay interest thereon at a rate of 15% per annum.

 

SELLING SHAREHOLDERS

 

This prospectus relates to the resale by the selling shareholders of up to 15,892,420 common shares being offered by this prospectus, all of which are being registered for sale for the accounts of the selling shareholders and include the following: (a) 7,946,210 common shares issuable upon the exercise of the Warrants issued pursuant to the Purchase Agreement and (b) 7,946,210 common shares issuable upon the conversion of the Notes.

 

We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the Purchase Agreement and Registration Agreement, which we entered into with the selling shareholders, in which we agreed to provide certain registration rights with respect to sales by the selling shareholders of the common shares that may be issued upon the exercise of the Warrants and conversion of the Notes by the selling shareholders.

 

The issuances were exempt under the registration provisions of the Securities Act. The aggregate purchase price for the Notes and Warrants was $325,000, which was paid in cash.

 

The selling shareholders, may, from time to time, offer and sell pursuant to this prospectus any or all of the shares referred to above, The selling shareholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act. We may from time to time include additional selling shareholders in supplements or amendments to this prospectus.

 

The selling shareholders may sell some, all or none of its shares. We do not know how long the selling shareholders will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling shareholders regarding the sale of any of the shares.

 

 
24
 

 

The following table sets forth the shares beneficially owned, as of September 21, 2015, by the selling shareholders prior to the offering contemplated by this prospectus, the number of shares that the selling shareholders may offer and sell from time to time under this prospectus and the number of shares which the selling shareholders would own beneficially if all such offered shares are sold.

 

Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering is based on 28,072,366 common shares outstanding as of September 21, 2015.

 

None of the selling shareholders are a registered broker-dealer or an affiliate of a registered broker-dealer. None of the selling shareholders or any of their respective affiliates have held a position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years except that David Stefansky became a director of the Company on July 7, 2015 and Jesse Kaplan, a director of the Company since July 7, 2015 is the President of Rocfrim Inc. The selling shareholders have acquired their shares solely for investment and not with a view to or for resale or distribution of such securities.

 

 

Name of Selling Shareholders

 

Beneficial Ownership Before the Offering

 

 

Common Shares Included in Prospectus

 

 

Beneficial Ownership After the Offering

 

 

Percentage of Ownership Before the Offering**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Stefansky

156 Beach 9 th Street, Apt. 7A

Far Rockaway, New York 11691 

 

 

3,178,484 (1)

 

 

3,178,484 (1)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Side Ventures LLC(2)

1800 South Ocean Drive, PH2

Hallandale Beach, Florida 33009

 

 

1,589,242 (3)

 

 

1,589,242 (3)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R&T Sports Marketing Inc.(4)

15440 SW 82 Avenue

Palmetto Bay, Florida 33157

 

 

1,589,242 (3)

 

 

1,589,242 (3)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rocfrim Inc.(5)

3625 Dufferin Street, Suite 409

Toronto, Ontario M3K1N4

 

 

3,178,484 (1)

 

 

3,178,484 (1)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plazacorp Investments Limited (6)

10 Wanless Avenue, Suite 201

Toronto, Ontario M4N1V6

 

 

3,178,484 (1)

 

 

3,178,484 (1)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taconic Group(7)

1835 NE Miami Gardens Drive, #272

North Miami Beach, Florida 33179

 

 

1,589,242 (3)

 

 

1,589,242 (3)

 

 

0

 

 

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summit Trading Ltd.(8)

904 Silver Spur Road, #257

Rolling Hills Estate, California 90274

 

 

1,589,242 (3)

 

 

1,589,242 (3)

 

 

0

 

 

*

 

_______________

* less than 1%

 

 
25
 

 

** Based on 28,072,366 outstanding common shares as of September 21, 2015.

 

(1)

Includes (i) 7,946,210 common shares upon the exercise of warrants at $0.0818 per share and (ii) 7,946,210 common shares issuable upon the conversion of the Notes.

(2)

Benjamin Kaplan, the Manager of Long Side Ventures LLC (“Long Side”) has sole voting and dispositive power over shares held by Long Side.

(3)

Includes (i) 794,621 common shares of issuable upon the exercise of warrants at $0.0818 per share and 794,621 common shares issuable upon the conversion of the Notes

(4)

Daniel Kaplan, President of R &T Marketing Inc. (“R&T”) has sole voting and dispositive power over shares held by R&T.

(5)

Jesse Kaplan, President of Rocfrim Inc. (“Rocfrim”) has sole voting and dispositive power over shares held by Rocfrim.

(6)

Sruli Weinrib, Vice President of Equity Investments of Plazacorp Investments Limited (“Plazacorp”) has sole voting and dispositive power over shares held byPlazacorp.

(7)

Robert Grinberg, Manager of Taconic Group (“Taconic”) has sole voting and dispositive power over shares held by Taconic.

(8)

Daryl Orenge, attorney in fact for Summit Trading Ltd. (“Summit”) has sole voting and dispositive power over shares held by Summit.

 

We may require the selling shareholders to suspend the sales of the securities offered by this prospectus upon the occurrence of any event that makes any statement in this prospectus, or the related registration statement, untrue in any material respect, or that requires the changing of statements in these documents in order to make statements in those documents not misleading. We will file a post-effective amendment to this registration statement to reflect any material changes to this prospectus.

 

Effect of Sales on Our Shareholders

 

All common shares that are covered by this prospectus are expected to be freely tradable. The sale of a significant amount of shares registered in this offering at any given time could cause the market price of our common shares to decline and to be highly volatile. The selling shareholders may ultimately acquire all, some or none of the common shares exercisable pursuant to their issued and outstanding warrants or convertible pursuant to the Notes registered in this offering. After they have acquired such shares, they may sell all, some or none of such shares.

 

Issuances of our common shares to the selling shareholders upon exercise of their warrants or conversion of their Notes stock will not affect the rights or privileges of our existing shareholders, except that the economic and voting interests of our existing shareholders will be diluted as a result of any such issuances. Although the number of common shares that our existing shareholders own will not decrease, the shares owned by our existing shareholders will represent a smaller percentage of our total outstanding shares after any such issuances.

 

DILUTION

 

If you invest in our common shares in this offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share of our common shares and the pro forma net tangible book value per share of our common shares immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of common shares in this offering and the pro forma as adjusted net tangible book value per share of the common shares immediately after completion of this offering.

 

Our historical net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of common shares outstanding. Our historical net tangible book value at June 30, 2015 was $(341,984), or $(0.012) per share.

 

 
26
 

 

After giving effect to the sale of 17,114,915 common shares by us at the public offering price of $0.0409 per share, which fixed price of $0.0409 has been arbitrarily determined as the selling price, and after deducting estimated offering expenses payable by us, our pro forma net tangible book value at June 30, 2015 would have been approximately $298,016, or $0.0066 per share. This would represent an immediate increase in the net tangible book value of $ 0.0105 per share to existing shareholders and an immediate dilution of $0.034 per share to investors in this offering.

 

The following table illustrates this dilution:

 

Assumed public offering price per share

 

 

.0409

 

 

$

 

Historical net tangible book value per share at June 30, 2015

 

$ (0.0039 )

 

 

 

 

Increase in pro forma net tangible book value per share attributable to new investors in this offering

 

 

0.0105

 

 

 

 

 

Pro forma net tangible book value per share immediately after this offering

 

 

0.0066

 

 

$

 

 

 

 

 

 

 

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

 

$ 0.0343

 

 

$

 

 

PLAN OF DISTRIBUTION

 

We have 28,072,366 common shares issued and outstanding as of the date of this prospectus. We are offering up to 11,002,445 common shares for sale at the price of $0.0409 per share. The selling price for the shares has been arbitrarily determined by us and bears no relationship to assets, earnings or other valuation criteria. No current trading market exists for our common shares. No assurance can be given that the shares offered will have a market value or that they may be sold as this, or any price. The selling shareholders may sell our common shares only at a fixed price of $0.0409 per share until such time, if at all, our shares are quoted on the Over the Counter QB (“OTCQB”) and thereafter at prevailing market prices or privately negotiated prices. After the date of this prospectus, we expect to have an application filed with the Financial Industry Regulatory Authority the (“FINRA”), for our common shares to be quoted on the OTCQB. There can be no assurance that a market maker will agree to file the necessary documents with nor can there be any assurance that such an application for quotation will be approved.

 

We will sell the common shares and do not plan to use underwriters or pay any commissions. There is no plan or arrangement to enter into any agreements to sell the common shares with a broker or dealer. Our officers and directors will be selling our common shares using our best efforts and no one has agreed to buy any of our common shares. This prospectus permits our officers and director to sell the common shares directly to the public, with no commission or other remuneration payable to them for any common shares they may sell. The common shares sold by us may be sold in one or more transactions at a fixed price of $0.0409 per share.

 

A minimum of 6,112,470 common shares must be sold, or a minimum of $250,000 must be raised. The offering period will commence upon the effectiveness of the registration statement of which this prospectus is a part and will terminate on the earlier of (i) 90 days from the date of this prospectus or the date on which all 11,002,445 common shares have been sold, unless extended or earlier terminated by our board of directors in its sole discretion. In the event that 6,112,470 shares are not sold during the offering period, all proceeds from the sale of the shares will be returned to subscribers, without interest or deduction. Subscriptions are irrevocable once made, and funds will only be returned if the subscription is rejected or if 6,112,470 shares are not sold prior to the termination of the offering.

 

All subscriptions received from investors will be pursuant to subscription agreements and will be deposited in an escrow account with David Lubin & Associates, PLLC, who will act as our escrow agent for the offering.

 

We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned to the subscriber, without interest or deduction.

 

 
27
 

 

Each selling shareholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling shareholder may use any one or more of the following methods when selling securities:

 

 

·

to or through underwriters or broker-dealers;

 

 

 

 

·

ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

 

 

 

 

·

block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

 

 

 

·

purchases by a broker dealer as principal and resale by the broker dealer for its account;

 

 

 

 

·

an exchange distribution in accordance with the rules of the applicable exchange;

 

 

 

 

·

privately negotiated transactions;

 

 

 

 

·

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

 

 

 

 

·

in transactions through broker dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

 

 

 

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

 

 

 

·

a combination of any such methods of sale; or

 

 

 

 

·

any other method permitted pursuant to applicable law.

 

The selling shareholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

 

Broker dealers engaged by the selling shareholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling shareholders (or, if any broker dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling shareholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

 
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The selling shareholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each selling shareholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed 8%.

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities for itself and selling shareholders. The Company has agreed to indemnify the selling shareholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because selling shareholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The selling shareholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the selling shareholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the selling shareholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling shareholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of common shares by the selling shareholders or any other person. We will make copies of this prospectus available to the selling shareholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

Penny Stock Rules

 

Our common shares are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, authorized for quotation from the NASDAQ stock market, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years, or the issuer's average revenues for each of the past three years must exceed $6,000,000.

 

Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common shares, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

 

 
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SHARE CAPITAL

 

Transfer Agent

 

The Company currently has no transfer agent and is responsible for its record-keeping and administrative functions in connection with the common shares and stock warrants.

 

Admission to Quotation on the OTC Bulletin Board

 

We intend to have our common stock be quoted on the OTCQB. If our securities are not quoted on the OTCQB, a security holder may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our securities. The OTCQB differs from national and regional stock exchanges in that it

 

(1)

is not situated in a single location but operates through communication of bids, offers and confirmations between broker-dealers, and

   
(2)

securities admitted to quotation are offered by one or more Broker-dealers rather than the "specialist" common to stock exchanges.

 

To qualify for quotation on the OTCQB, an equity security must have one registered broker-dealer, known as the market maker, willing to list bid or sale quotations and to sponsor the company listing. If it meets the qualifications for trading securities on the OTCQB our securities will trade on the OTCQB until a future time, if at all, that we apply and qualify for quotation or listing on another exchange Our shares may not now and may never qualify for quotation on the OTCQB or be accepted for listing on any other exchange.

 

Articles of Incorporation and Bylaws

 

The Company’s Articles of Incorporation were filed with the Director under the CanadaBusiness Corporations Act (Ontario) (“OBCA”) on October 31, 2011. The Company’s Ontario corporation number is 2304101. The Company’s Articles of Incorporation do not contain and are not required to contain a description of our object and purposes. There is no restriction contained in our Articles of Incorporation on the business that we may carry on.

 

On November 30, 2011, the Company filed Articles of Amendment to set forth the rights and conditions of its common shares and to create an unlimited number of non-voting common shares and to set forth the rights and conditions of such non-voting common shares. On May 14, 2015, the Company filed Articles of Amendment to change the 135 issued and outstanding common shares into 13,500,000 common shares on a 100,000 for 1 basis. On June 26, 2015, the Company filed Articles of Amendment to eliminate the restrictions on share transfer, issuance or ownership set forth in Section 8 of the Certificate of Incorporation.

 

Power to Vote on Matters in Which a Director is Materially Interested . Our Bylaws state that a director must disclose to us, in accordance with the provisions of the CBCA, the nature and extent of an interest that the director has in a material contract or material transaction, whether made or proposed, with us, if the director is a party to the contract or transaction, is a director or an officer or an individual acting in a similar capacity of a party to the contract or transaction, or has a material interest in a party to the contract or transaction. A director required to make such a disclosure is not entitled to vote on any directors’ resolution to approve that contract or transaction, except as provided for in the CBCA.

 

Directors’ Power to Determine the Remuneration of Directors . The CBCA provides that the remuneration of our directors, if any, may be determined by our directors subject to our amended Certificate of Incorporation and by-laws. Our Bylaws permit the board of directors to fix director compensation.

 

Borrowing powers of our Directors. Our Articles of Incorporation provide that, if authorized by our directors, we may: (i) borrow money upon our credit; (ii) issue, sell or pledge debt obligations of the Company; or (iii) charge, mortgage, hypothecate or pledge all or any currently owned or subsequently acquired real or personal, movable or immovable property of the Company, including book debts, rights, powers, franchises and undertaking, to secure any debt obligations or any money borrowed, or other debt or liability of the Company.

 

 
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Retirement or Non-Retirement of Directors under an Age Limit Requirement . Neither our amended Certificate of Incorporation, our Bylaws nor the CBCA impose any mandatory age-related retirement or non-retirement requirement for our directors.

 

Number of Shares Required to be Owned by a Director . Neither our amended Certificate of Incorporation, our Bylaws nor the CBCA provide that a director is required to hold any of our shares as a qualification for holding his office.

 

Action Necessary to Change the Rights of Holders of Our Common Shares

 

Under the OBCA, our shareholders can authorize the alteration of our amended Articles to create or vary any special rights or restrictions attached to our common shares by passing a special resolution. However, a right or special right attached to any class or series of shares may not be prejudiced or interfered with unless the shareholders holding shares of that class or series to which the right or special right is attached consent by a separate special resolution. A special resolution means a resolution passed by: (a) a majority of not less than two-thirds of the votes cast by the applicable class or series of shareholders who vote in person or by proxy at a meeting, or (b) a resolution consented to in writing by all of the shareholders entitled to vote holding the applicable class or series of shares.

 

Shareholder Meetings

 

We must hold an annual meeting of our shareholders at least once every year at a time and place determined by our board of directors, provided that the meeting must not be held later than 15 months after the preceding annual meeting. A meeting of our shareholders may be held within or outside of Ontario as our directors determine. Our directors may, at any time, call a meeting of our shareholders.

 

A notice to convene a meeting, specifying the date, time and location of the meeting, and, where a meeting is to consider special business (which is any business other than the consideration of the financial statements, auditor’s report, election of directors or the re-appointment of the current auditor), the general nature of the special business, must be sent to shareholders, to each director and the auditor not less than 10 and not more than 50 days prior to the meeting.Under the OBCA, shareholders entitled to notice of a meeting may waive or reduce the period of notice for that meeting.The accidental omission to send notice of any meeting of shareholders to, or the non-receipt of any notice by, any person entitled to notice does not invalidate any proceedings at that meeting.

 

Our Bylaws provide that a quorum of shareholders is the holders of at least a majority of the shares entitled to vote at the meeting, present in person or represented by proxy. If a quorum is not present at the opening of the meeting, the Chairman with the consent of the shareholders present may adjourn the meeting.

 

Our directors, our auditor and any other persons invited by our chairman with the consent of those at the meeting are entitled to attend at any meeting of our shareholders but will not be counted in the quorum or be entitled to vote at the meeting unless he or she is a shareholder or proxyholder entitled to vote at the meeting.

 

The holders of the Company’s voting common shares are entitled to receive notice of, and attend and vote at all meetings of shareholders. The holders of the Company’s non-voting common shares are not entitled to receive notice of, and attend and vote at all meetings of shareholders, except that they are entitled to notice of a shareholder meeting called for the purpose of the Company’s dissolution or sale, lease or exchange of all or substantially all of its property.

 

The holders of the voting common shares and non-voting common shares are entitled to dividends as the board of directors in its sole discretion may declare for such voting and/or non-voting shares. Upon dissolution and winding-up of the Company, the voting and non-voting shares are entitled to receive the remaining assets of the Company, pari passu with all of the holders of common shares.

 

 
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Pursuant to Section 7.06 of the Company’s By-laws, and subject to OBCA, the quorum at meetings of the Company’s shareholders shall be constituted by the presence of a majority of shareholders entitled to vote at any such meeting present in person or by proxy.

 

There are no limitations on the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities of the Company imposed by foreign law or by the Articles of Incorporation or any other constituent document of the Company.

 

Change of Control

 

Our Articles of Incorporation and Bylaws do not contain any change of control limitations with respect to a merger, acquisition or corporate restructuring that involves us.

 

Although applicable securities laws regarding shareholder ownership by certain persons require disclosure, our Articles of Incorporation do not provide for any ownership threshold above which shareholder ownership must be disclosed.

 

The following description of our capital stock is a summary and is qualified in its entirety by the provisions of our Articles of Incorporation, as amended, and Bylaws, which have been filed as an exhibit to our registration statement of which this prospectus is a part.

 

Common Shares

 

We are authorized to issue an unlimited number of common shares, no par value. As of June 30, 2015 and September 21, 2015, 28,072,366 common shares were issued and outstanding.

 

We have voting and non-voting common shares.

 

Each holder of shares of our voting common shares is entitled to one vote for each share held of record on all matters submitted to the vote of shareholders, including the election of directors. The holders of common shares have no preemptive, conversion, subscription or cumulative voting rights. There is no provision in our articles of incorporation or bylaws that would delay, defer or prevent a change in control of our company. The holders of our non-voting common shares are not entitled to vote on matters presented to shareholders.

Preferred Shares

 

We are not authorized to issue preferred shares.

 

Warrants

 

Pursuant to the Purchase Agreement we issued immediately exercisable five- year warrants to purchase an aggregate of 7,946,210 common shares at an exercise price of $0.0818, subject to adjustment as provided in the Warrants. The Warrants are exercisable on a cashless basis.

 

Options

 

As of September 21, 2015, we have granted options to purchase (i) an aggregate of 5,900,000 common shares at an exercise price of 0.0001 per share, which are immediately exercisable and (ii) and aggregate of 2,700,000 common shares at an exercise price of 50% of the market value on the date of exercise, of which 2,025,000 are currently exercisable.

 

 
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Lockups

 

In connection with the Purchase Agreement, the current shareholders of the Company holding an aggregate of 28,072,366 common shares are subject to lock-up agreements, dated July 7, 2015. Under the lock-up agreements, such shareholders agreed not to sell, pledge, grant any right or in any way transfer any of the Company’s securities held by them for a period of 12 months after a Going Public Event, except that such prohibition does not apply to transfers to the selling shareholders (pro rata to their then common share ownership), gifts, transfer to a trust for the benefit of an immediate family member or to an Internal Revenue Code recognized charitable organization.

 

History of Share Capital

 

Upon our incorporation on October 31, 2011, we issued 135 common shares at $1.00 per share to companies controlled by our founders, Scott Woodrow and Leopold Grunwald.

 

In 2013 and 2014 we entered into convertible loan agreements with eleven investors, pursuant to which such investors loaned us an aggregate of $490,000. All of the loans were converted into an aggregate of 13,176,094 common shares on December 15, 2014.

 

On July 7, 2015, we entered into the Purchase Agreement with the selling shareholders pursuant to which we agreed to sell a minimum of $320,000 and a maximum of $770,000 of Notes and Warrants pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. An aggregate of $325,000 of Notes and Warrants was sold, representing an aggregate of 7,946,210 common shares issuable upon the conversion of the Notes and an aggregate of 7,946,210 issuable upon the exercise of the Warrants.

 

MATERIAL INCOME TAX CONSIDERATIONS

 

The following summarizes the material Canadian federal income tax considerations generally applicable to the holding and disposition of the Company’s common shares by a holder who acquires such common shares as beneficial owner pursuant to this offering (in this summary, a “Non-Canadian Holder”) and who, for the purposes of the Income Tax Act (Canada)and the Income Tax Regulations (collectively the “Tax Act”) and at all relevant times, (i) is not, and is not deemed to be, resident in Canada, (ii) deals at arm’s length with, and is not affiliated with, the Company and, (iii) holds such common shares as capital property and does not use or hold, and is not deemed to use or hold, the common shares in the course of carrying on, or otherwise in connection with, a business in Canada. Special rules which are not discussed in this summary apply to a Non-Canadian Holder that is an insurer carrying on an insurance business in Canada and elsewhere.

 

This summary is based on the current provisions of the Tax Act, the Canada-United States Tax Convention (1980), as amended (the “Treaty”), all proposed amendments to the Tax Act and the Treaty publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof, and our understanding of the current published administrative practices of the Canada Revenue Agency. It has been assumed that all such proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, whether by legislative, administrative or judicial action, although no assurances can be given in this respect.

 

The summary does not take into account Canadian provincial, U.S. federal, state or other foreign income tax law or practice.

 

This summary is not applicable to: (i) a Non-Canadian Holder that is a "financial institution" as defined in the Tax Act for the purposes of the "mark-to-market property" rules; (ii) a "specified financial institution" as defined in the Tax Act; (iii) a Non-Canadian Holder an interest in which is a "tax shelter investment" as defined in the Tax Act; (iv) a Non-Canadian Holder to whom the "functional currency" reporting rules in the Tax Act apply; (v) a Non-Canadian Holder that is a foreign affiliate (as defined in the Tax Act) of a taxpayer resident in Canada; (vi) a Non-Canadian Holder that has entered into or will enter into a "derivative forward agreement" or a "synthetic disposition arrangement", as those terms are defined in the Tax Act, with respect to the common shares of the Company; or (vii) a Non-Canadian Holder who acquired their common shares pursuant to the exercise of an employee stock option.

 

 
33
 

 

Subject to certain exceptions that are not discussed in this summary, for the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of common shares must be determined in Canadian dollars based on the rate of exchange quoted by the Bank of Canada at noon on the date such amount first arose or such other rate of exchange as may be acceptable to the Canada Revenue Agency.

 

This summary is of a general nature only and is not, and is not intended to be, legal or tax advice to any particular holder. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, prospective purchasers of common shares should consult their own tax advisors having regard to their own particular circumstances.

 

Dividends

 

Dividends paid or credited on the common shares or deemed to be paid or credited on the common shares to a Non-Canadian Holder will be subject to Canadian withholding tax at the rate of 25%, subject to any reduction in the rate of withholding to which the Non-Canadian Holder is entitled under any applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident. For example, under the Canada-U.S. Tax Treaty, where dividends on the common shares are considered to be paid to or derived by a Non-Canadian Holder that is a beneficial owner of the dividends and is a U.S. resident for the purposes of, and is entitled to benefits of, the Canada-U.S. Tax Treaty, the applicable rate of Canadian withholding tax is generally reduced to 15% (or 5% if the Non-Resident Holder is a company which owns at least 10% of the voting stock of the Company).

 

Dispositions

 

A Non-Canadian Holder will not be subject to tax under the Canadian Tax Act on any capital gain realized on a disposition or deemed disposition of a common share, unless the common shares are "taxable Canadian property" to the Non-Canadian Holder for purposes of the Canadian Tax Act and the Non-Canadian Holder is not entitled to relief under an applicable income tax convention between Canada and the country in which the Non-Canadian Holder is resident .

 

Generally, the common shares will not constitute "taxable Canadian property" to a Non-Canadian Holder at a particular time unless at any time during the 60 month period immediately preceding the disposition, more than 50% of the fair market value of the common shares was derived, directly or indirectly, from one or any combination of: (i) real or immoveable property situated in Canada, (ii) "Canadian resource properties" (as defined in the Canadian Tax Act), (iii) "timber resource properties" (as defined in the Canadian Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, property in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain circumstances set out in the Canadian Tax Act, common shares could be deemed to be "taxable Canadian property". Non-Canadian Holders whose common shares may constitute "taxable Canadian property" should consult their own tax advisors.

 

EXCHANGE CONTROLS

 

There are no government laws, decrees or regulations in Canada which restrict the export or import of capital or, subject to the following sentence, which affect the remittance of dividends or other payments by us to nonresident holders of our common shares, other than withholding tax requirements.

 

There are currently no limitations of general application imposed by Canadian federal or provincial laws on the rights of non-residents of Canada to hold or vote our common shares. There are also no such limitations imposed by the Company’s Articles of Incorporation with respect to our common shares. There are, however, certain requirements on the acquisition of control of the Company by non-residents of Canada. The Investment Canada Act requires notification to and, in certain cases, advance review and approval by, the government of Canada, of the acquisition by a “non-Canadian” of “control” of a “Canadian business”, all as defined in the Investment Canada

 

Act. Generally speaking, in order for an acquisition of control to be subject to advance review and approval, the enterprise value of the Canadian business being acquired must meet or exceed certain monetary thresholds. It is also possible for the government of Canada to initiate a review on the basis of national security regarding investments of any size.

 

 
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In the context of the acquisition of control of a publicly traded company, as a general matter enterprise value is based on market capitalization plus liabilities minus cash and cash equivalents. Important exceptions apply if the acquiror is a state-owned enterprise or if the acquiror is from a non-world trade organization member state or if the target Canadian business engages in a “cultural business” as defined in the Investment Canada Act.

 

INTEREST OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common shares was employed on a contingency basis or had, or is to receive, in connection with the offering, a substantial interest, directly or indirectly, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its affiliates as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.

 

  DESCRIPTION OF BUSINESS

 

History and Overview of the Company

 

We were incorporated on October 31, 2011 in the Province of Ontario, Canada and do business as Behavioural Neurological Applications and Solutions. We are a cognitive software development company with a primary focus on the development of software based assessment and remediation tools for children used in the professional assessment and treatment of cognitive disabilities.

 

In December 2011, we entered into collaboration with the Hospital to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific tools, we have developed a content delivery and patient data platform, RKIA, that enables content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients.

 

Our focus is on the child and adolescent mental health markets, with an initial focus on children with ADHD. These markets include the ADHD therapeutics market and the cognitive assessment markets with market sizes of over $7 billion and $2 billion, respectively, according to GBI Research and Marketsandmarkets Research, a global marketing research firm.

 

In the therapeutics market, we have entered into a license agreement with Pear Therapeutics, a US based therapeutics company, developing novel combination therapies referred to as “e-formulations”.

 

The cognitive assessment market is dominated by a small number of competitors, the prominent ones being Pearson Education Limited (“Pearson”) and Multi Health Systems, Inc.

 

Based upon the Hospital’s research which identified the cognitive functions of attention and inhibitory control as priority cognitive deficits found in children with ADHD as well as being common comorbidities in many other cognitive illnesses in children, we currently intend to include cognitive illnesses and occurrences such as anxiety, depression, OCD, mTBI and chemotherapy induced cognitive deficit in our future development efforts.

 

From inception, we have has been funded by a combination of capital and grant financing totaling approximately $1,100,000 comprised of $630,000 of grant financing and $470,000 of equity financing. While our strategy of synergies with therapeutics and clinical assessment partners significantly defrays our capital requirements, we hope to continue new product and partner development, enhance existing products, enable software as service revenue through RKIA and conduct independent clinical studies for further promotion as independent products and branding and conduct independent clinical studies for further promotion as independent products and branding.

 

Commercialization of our software products is intended to be achieved through both direct and indirect distribution to clinical and research users. Our cognitive assessment and remediation programs can be utilized as independent tools within a battery of broader methods in the provision of mental health care. We intend to make these tools available to our clinical users either through direct access as part of our RKIA mental health informatics platform, direct subscription, or through distribution partners of mental health assessment and remediation tools.

 

 
35
 

 

On May 14, 2015, we effectuated a 100,000:1 forward stock split of our common shares.

 

Since January 2012, the Company’s activities were principally related to research and development expenditures. The Company did not make any material capital expenditures or divestitures since January 2012.

 

Material Agreements

 

We entered into a collaboration agreement, dated December 8, 2011, with the Ontario Brain Institute (“OBI”) and the Hospital pursuant to which we collaborated with the Hospital to develop the Company’s intellectual property which is jointly owned by the Hospital and the Company. As of December 31, 2014, the Company fulfilled its requisite collaborations under the agreement. Under the agreement, the Hospital granted the Company an option for the exclusive worldwide, perpetual, royalty-bearing license to the Hospital’s interest in such intellectual property at a royalty of 5% of net revenues, to be reduced to 2.5% after the Hospital has received CAD$1,000,000 in royalties for the related ADHD cognitive assessment and remediation products. Upon receiving CAD$1,000,000 in royalties, the Hospital agree to assign its rights in the intellectual property developed in collaboration with the Company to the Company but will retain a perpetual, non-exclusive license to use such intellectual property for non-commercial and clinical purposes. Pursuant to an amendment to the collaboration agreement, effective January 1, 2014, all intellectual property rights exclusively belong to the Hospital.

 

Also on December 8, 2011, we entered into a Memorandum of Understanding with the Hospital to collaborate on the development of a protocol for the development of a software based treatment program for children with ADD/ADHD to be funded through the OBI and the Federal Economic Development Agency for Southern Ontario. The Company is currently negotiating a definitive agreement with the Hospital.

 

On June 1, 2012, we entered into a four-year consulting agreement with Dr. Russell Schachar to provide clinical advisory and product development services in connection with the development of our software based treatment for ADD/ADHD with the Hospital. As compensation for such services, we agreed to pay Dr. Schachar an annual consulting fee of $60,000 and five-year stock options to purchase an aggregate of 2,300,000 of our common shares at an exercise price of 50% of the market value on the date of exercise, of which 1,350,000 shares subject to the option vested on June 1, 2014, 675,000 shares vested on June 1, 2015 and 675,000 shares will vest on June 1, 2016. The options have a cashless exercise provision. If the Company terminates the agreement except for cause, a material breach or the Company’s bankruptcy, Dr. Schachar is entitled to a lump sum severance payment of $60,000.

 

The agreement contains a confidentiality provision that survives termination of the agreement for one year and a non-competition agreement by Dr. Schachar during the term of the agreement and for 12 months thereafter.

 

On February 19, 2014, we entered into a consulting agreement with Sticky Brain Studios (“SBS”) under which SBS will provide technology development and production services of interactive digital memory (the “Game”) for use by us and our clients and for eventual commercialization. The Game, source code and related intellectual property will be owned exclusively by us. We will pay SBS up to $250,000 for its services in accordance with a payment schedule in the agreement based upon delivery of software product related milestones. Under the agreement, the Company will supply end users with Tier 1 support and SBS will supply Tier 2 support. SBS will be entitled to a maintenance and support fee of 5% of net sales of the Game. The Company may terminate the agreement at any time upon 10 days’ notice.

 

On December 9, 2014, we entered into a software license agreement with Pear Therapeutics, Inc. (“Pear”) pursuant to which we will provide Pear with a world-wide, non-transferable perpetual license to the Company’s products for Pear to create, commercialize, distribute and sublicense a combination product using our Megateam software applications for treating mental health conditions including ADHD. The license will be exclusive with respect to a combination product subject to Pear obtaining rights to sell with an acceptable drug and non-exclusive with respect to any other rights. Pear will pay us a royalty of 2.5% of any net revenues from the license of our products, to be paid quarterly. We may terminate the agreement if Pear has not paid us $4,000,000 in annual royalties for each of 2022, 2023 and 2024 and Pear has not obtained regulatory approvals to commercialize combination products and integrated products (our software imbedded within the source code of Pear branded products) within eight years. Either party may terminate the agreement for a material breach by the other after notice and a 30-day cure period. Pear may terminate the agreement upon a change of control of the Company, the Company becoming insolvent or upon 60 days’ prior written notice.

 

 
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The Company received an aggregate of CDN$225,000 in a funding grant under a cooperation and project funding agreement entered into on June 7, 2012 with the Canada-Israel Industrial Research and Development Foundation (“CIIRDF”). The purpose of the grant was to fund the Company’s development of a cognitive assessment and treatment platform for childhood attention deficit disorder and attention hyperactivity disorder. Under the terms of the grant, CIIRDF would fund up to CDN$300,000. The development grant of $225,000 is repayable to CIIRDF based upon 2.5% of annual gross sales derived from the sale, leasing or commercialization of the products developed up to a maximum of the amount grant. . To date, no collaboration was performed nor was any intellectual property developed under the agreement.

 

Products

 

We are creating a mental health data platform that integrates with our proprietary and third-party assessment and therapeutic digital applications. . Our product focus is based on three tiers of activities: (1) Creation of clinically validated digital assessment and rehabilitation software that is engaging for the patient (2) Adaptation of third-party clinically validated digital assessment and rehabilitation software for enhanced patient engagement and data modeling (3) Creation of an advanced mental health informatics and digital application delivery platform.

 

MegaTeam Digital Assessment and Rehabilitation Applications

 

Our assessment and rehabilitation products are built on established methodologies for the measurement of cognitive abilities in populations with ADHD. Methodologies commonly used today involve repetitive performance of tasks using digital interface. These tasks are repeatedly administered to the patient in order to obtain accurate measures. Many of the assessments used today had been developed using programming methodologies whereby the task is simply exhibited on screen and the patient is instructed to respond to stimuli. Our research has found that patients, in particular those with symptoms of ADHD, have difficulty completing the necessary regiment of tasks due to lack of engagement. Additionally, these tasks are often administered in a clinical setting, often resulting in extended time in clinical settings for the patient and their accompanying parent or guardian. Our products have been developed to address these primary concerns as well as to enable a breadth of cognitive tasks to be assessed and an individualized cognitive rehabilitation program to be administered remotely.

 

The MegaTeam applications involve the imbedding of cognitive assessment and rehabilitation tasks within an engaging video game environment. MegaTeam was designed and programmed with the intention of providing comparable engagement to video game play. In the design, narrative and programming of our MegaTeam game we utilize experts in children’s digital content and programming. A significant part of the MegaTeam development involved assessing user engagement and consultation on characters, narrative and graphic design.

 

MegaTeam applications have been designed for deployment on multiple digital interfaces including PC, Mac, Android and iOS systems. Our applications may be used in a clinic or a patient’s home or remotely, provided there is an adequate data connection.

 

Developed MegaTeam products include: (1) Stop Signal Reaction Time Assessment (2) N Back Assessment (3) Inhibitory Control Rehabilitation (4) and Working Memory Rehabilitation. We are planning the development of a broader suite of cognitive tasks and rehabilitation mechanisms in order to increase the addressable mental health indications.

 

Third-party Contract Services

 

We believe that we have the expertise of understanding the complexities of mental health measurement and rehabilitation methodologies along with game design and programming. Researchers and developers of digital applications for mental health may recognize the advantage of engaged users, but lack the expertise in game based translation. We intend to market ourselves to researchers and developers to enhance their digital applications as a fee based service. We are working closely with mental health research networks to avail our existing MegaTeam tools as well as our programming expertise to enhance and commercialize new products and services.

 

 
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Right Data

 

Our goal is rooted not in “big data”, but in “right data”. While healthcare datasets may quickly become large and complex, we believe that there is a tendency to try to collect anything and everything, and hope that the analytics will derive conclusions. We believe that multiple data sets may provide inconsistencies in the type and quality of data being collected, effectively rendering the combined data incompatible and unusable.

 

Our strategy is to be more prescriptive on what is being collected. We believe in defining a patient- centered ontology for leading behavioral science diseases and conditions that is based on a minimum critical clinical data set. In other words, rather than collecting anything, we collect specific data elements that are critical on a per disease/condition basis.

 

The data categories can be broadly defined as: demographics, clinical tests, diagnosis, treatment, clinician reported outcomes and patient reported outcomes. We work with clinicians and researchers in each of our target diseases/conditions to define the specific data elements in each of these categories.

 

With the definition of the data sets as the basis, we have created a platform that integrates our own, as well as third party, digital applications for clinicians, patients and researchers. We believe that each of these applications is carefully selected to deliver high impact experiences, and when integrated to our platform, are mapped to our data sets.

 

Quality Data

 

While we believe that right data gives the platform focus and ensures that it does not become unwieldly, the quality of the data is imperative. Like other complex data environments, healthcare data integrity may suffer from a common Garbage-in Garbage-out (“GIGO”). The applications that are integrated are specifically curated so that they prevent GIGO and allow clinicians, patients and researchers to interact with high quality data which we may rely.

 

We believe that for behavioral sciences, one of the key challenges with right data and its quality is that the data structures are not necessarily structured/synoptic. There are many surveys, or textual documentation that we believe do not lend themselves well to a data environment - thus ensuring high quality data can become difficult. By working with clinicians and researchers, we are able to define what the right data elements are, and by doing so, we believe, have a chance of making it high quality.

 

Outcome Data

 

We have learned from other health care institutions that outcome data based on high quality clinical, diagnosis and treatment data can be relied upon to inform treatment. We believe that outcome data in healthcare, and in particular behavioral sciences, has been missing, unstructured or incomplete. The lack of reliable outcome data limits the value of large data sets. We believe that our platform solves this problem by providing the platform and applications that allow for consistent outcome capture by clinicians.

 

The applications that we integrate capture outcomes from a patient’s perspective. These patient reported outcomes can be automated via sensors or manual via applications and are part of the data set definition.

 

With use as our data sets grow in magnitude; we hope that our platform will be the definitive source of high quality clinical and outcome data for behavioral sciences that will be used by clinicians, researchers, health care systems and industry partners to improve outcomes. We hope to accomplish this by the creation and integration of carefully chosen applications.

 

 
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Applications

 

Our data platform provides the facilities for applications that clinicians, researchers and patients use to receive and contribute data. The applications can be as simple as forms that are filled out or surveys that are responded to, or as complex as digital therapeutics. These are curated on a per disease/condition basis. The applications used for ADHD for boys aged 7 to 10 will differ than the applications used for OCD for girls aged 16+.

 

The central application on the platform is a Patient Management Application (“PMA”) which allows clinicians to manage patients, view data within the data sets and assign applications to patients or their parents. They assign applications from an App Store concept, where they see the best clinical data, diagnosis, therapeutic and outcome applications available and can choose the one that is most appropriate for their patient. The applications are ranked in terms of value (our rating), rating (from other users) and use, and can have a fee associated with it.

 

Market

 

Attention Deficit and Hyperactivity Disorder (“ADHD”)

 

Our primary market focus has been the child and adolescent ADHD market, due to its prevalence, market size and market gap in non-pharmacological interventions.

 

Attention Deficit Hyperactivity Disorder (“ADHD”) is a childhood onset clinical disorder of inattention, hyperactivity, and impulsivity (DSM-IV-TR). Behavioral hyperactivity in children with ADHD generally decreases with age, however, attentional and inhibitory problems frequently continue into adulthood. ADHD is pervasive, impairing, and cognitively based which may coexist with other childhood onset disorders ) such as Oppositional Defiant Disorder , learning disabilities , anxiety disorders , and Conduct Disorder Children with Autism Spectrum Disorder may also display symptoms consistent with those of ADHD. Children with ADHD are at risk of developing antisocial behavior; may be susceptible to substance experimentation and may display lower reading and math achievement scores. The cost of providing educational resources and social care to children with ADHD may be substantial Distracted and impulsive behavior may place a high demand on health care, judicial, and special education services. For these reasons, clinicians, researchers, as well as the affected families search for treatments that may intervene and alter the developmental trajectory of ADHD.

 

The current treatments available for children with ADHD can be classified as pharmacological or behavioral/cognitive. The pharmacological agents most often used in the treatment of ADHD are stimulant medications. Although stimulant medications help remediate some of the symptoms associated with ADHD, we believe based upon review of research studies the benefits are limited and do not persist after discontinuation of medication.. The non-pharmacological interventions can be separated into parent training, behavioral interventions and cognitive behavioral interventions. These interventions target specific skills and gains in performance may not generalize to other skills or abilities. Similarly to stimulant medications, the benefits may last only as long as the intervention is active. These interventions include such programs as token contingency reward systems, communication training to help resolve conflicts between parents and adolescents, and cognitive restructuring (i.e. recognizing unhelpful thought processes and modifying them). There are also behavioral interventions that focus on the classroom environment; for example, seating the child close to the teacher so that the teacher can provide prompts and reminders. This type of intervention does not treat the child’s deficit(s) but aims to reduce the effects of those deficits on learning.

 

In general, behavioral interventions target parents or the classroom environment rather than the patients and in many cases they do not remediate academic difficulties and the benefits are limited and transient. Furthermore, although, many theories define ADHD as a disorder of executive functions (our cognitive management system), we believe this field is currently lacking an evidence-based intervention which directly tackles the cognitive deficits in ADHD. For these reasons, we believe that cognitive training will be welcomed as an alternative intervention. Cognitive training can directly target the cognitive deficits in ADHD, has the potential to be more accessible (train at home), we believe appears to produce performance gains that generalize and that benefits have been shown to persist following the completion of the training and reinforce academic achievement. 

 

 
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Psychological Assessment and Digital Tools

 

We believe that the overall youth mental health market continues to increase at a rapid rate – with special education requirements in particular growing exponentially year over year in North America. As an example, according to the Toronto District School Board Special Education Review, there has been year over year growth of 19% in special education programs at the Toronto District School Board. In many jurisdictions, special education is delivered based on a psycho-educational assessment that forms the basis of an Individualized Education Plan for the student.

 

The cognitive assessment and training market can be segmented by type of products: pen and paper-based assessment, hosted assessment and training tools, and innovative medical instruments and biometrics.

 

We believe that solution providers that currently provide paper based and digital assessments such as Pearson Assessments Canada Inc. (“Pearson”), and Multi Health Systems Inc. (“MHS”)and other competitors are expected to continue to leverage opportunities across multiple regions by providing innovative cognitive assessment and training solutions. We believe that end customers, medical practitioners, and educational professionals will remain the major market for cognitive assessment and training solutions. The dominant players in the child and adolescent mental health remain Pearson and MHS, while others serve the mature and geriatric adult populations and research tools markets. Lumosity and similar companies are not clinical tools and relate generally to “brain fitness” for self-assessed and non-prescribed users.

 

The cognitive assessment and training market is estimated to grow from $1.7 billion in 2013 to $5.7 billion in 2018, at a compound annual growth rate of 27.3% from 2013 to 2018 according to Marketsandmarkets Research, a global market research firm. Mental health professionals are currently the largest contributor for cognitive assessment and training solutions. In terms of regions, we believe that North America is expected to be the biggest market in terms of revenue contribution, while the Asia Pacific region is expected to experience increased market traction, in due course.

 

Product Differentiation

 

We strive to provide the best tools and resources for today’s populations. Many of the incumbent products have been developed and validated in their academic form which we believe lack a feel for today’s clients and practitioners. As with other areas of therapeutic care, there is a drive for real time, data rich tools that enable individual treatment and ongoing monitoring. A significant portion of the existing market for cognitive assessment and therapy relies upon paper based tools and checklists that have little or no connected monitoring capacity or real time progress reporting. As such, we have developed products with the following key values: (1) user engagement (2) data rich (3) clinically validated (4) multi-screen and mobile deployment.

 

Our assessment products are derived from designs and methods clinically studied at the Hospital. Our plans include the study of our derived products and cognitive rehabilitation software through clinical studies led by the Hospital. These studies include multiple phases from pilot studies through affected population studies and allow the measurement, using various criteria and techniques, of the effect of our cognitive rehabilitation program on target populations.

 

Our review of incumbent tools and consultations with clinical psychologists has shown significant user malaise relating to compliance. In contrast, feedback from users and clinical psychologists of our MegaTeam product identified strong user engagement and thereby we believe, stronger capacity for training compliance. Our tools have been developed on Unity, a , a common game development platform that can be used on most fixed and mobile devices, enabling the expansion of narrative and the adaptation of new character and game environments to maintain long-term engagement of product differentiation. The underlying cognitive tools and data remain unchanged as the “skin” is adapted for future versions and client profiles.

 

Competition

 

We anticipate that the principal markets in which our products will compete will initially include North America. Thereafter, we hope to expand to Asia. Currently, there are no regulatory requirements on the use of products in clinical or research areas in these markets.

 

 
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Intellectual Property

 

Our success depends in part on our ability to protect our technology and intellectual property. To accomplish this, we rely on a combination of trade secrets, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights.

 

Our success will likely depend upon our ability to preserve our proprietary software and operate without infringing the proprietary rights of other parties. However, we may also rely on certain proprietary technologies and know-how that are not patentable.

 

We strive to protect such proprietary information, in part, by the use of confidentiality agreements with our consultants and collaborators.

 

We do not own or license any patents.

 

Properties

 

The Company rents approximately 229 square feet of office space at the University of Toronto under a one-year lease that expires on April 30, 2016 for a monthly rent of approximately $820. We believe that currently this space is adequate. We do not have any policies regarding investments in real estate, securities or other forms of property.

 

Legal Proceedings

 

From time to time, we may become involved in legal or regulatory proceedings arising in the ordinary course of our business. We are not currently a party to any material litigation or regulatory proceeding and we are not aware of any pending or threatened litigation or regulatory proceeding against us that could have a material adverse effect on our business, operating results, financial condition or cash flows.

 

Plan of Operations

 

Our plan of operations over the next six months involves establishing clinical efficacy of ADHD remediation programs, expanding assessment and remediation content through in-licensing and development and continuing to build our mental health informatics platform.

 

A portion of the proceeds from this offering, if any, will be utilized to expand the existing team of computer programmers and mental health experts. We are currently involved in multiple clinical trial networks through the network of trials and clinics associated with the Hospital. We hope to conduct pilot studies and clinical studies to validate the efficacy and accuracy of our products. Our license with Pear includes the co-payment of clinical validation work related to the combination of our product with medicinal therapies. .

 

Our plan of operations involves continued expansion of our menu of content as well as the population of data within our mental health informatics platform. We hope to raise additional funds by the sale of our equity or debt securities to expand our clinical and software team or to acquire entities that provide content, technology and market share related to our strategy.

 

We anticipate that research and development for the next 6 months will include conducting pilot and clinical studies on cognitive assessment and rehabilitation tools and amending the software for improvements derived therefrom and

 

populating our mental health informatics platform with related clinical content and process related to extracting, organizing and analyzing data therefrom

 

We currently anticipate hiring five employees to replace contract service providers for software development and clinical research in the next 6 months, subject to sufficient resources.

 

We have not generated any revenues to date other than approximately $30,000 of service revenue in 2013 which consisted of consulting fees to assist in establishing the criteria for procurement of evidence based methodologies utilized in the assessment and delivery of special education.

 

 
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We have developed and hope to commercialize cognitive software based assessment and remediation tools for children used in the professional assessment and treatment of cognitive disabilities. In December 2011, we into collaborated with the Hospital to identify the clinical needs, design and processes required to create clinical grade toolsets. We have also developed a content delivery and patient data platform, RKIA, that enables both our own and third party content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients.

 

Our focus is on the child and adolescent mental health markets, with an initial focus on children with ADHD. In the therapeutics market, we have entered into a license agreement with Pear for the development of combination therapies referred to as “e-formulations”. We are in discussions with Pearson to collaborate on the combination of its products and joint distribution.

 

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis of our financial condition and results of operations is based upon and should be read together with our financial statements and the related notes and the other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results, performance and achievements could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this prospectus, particularly under “Risk Factors.” See “Cautionary Note Regarding Forward-Looking Statements.” Our financial statements have been prepared in accordance with U.S. GAAP.

 

Overview

 

We are a cognitive software development company with a primary focus on the development of software based assessment and remediation tools for children used in the professional assessment and treatment of cognitive disabilities. We have entered into a collaboration with Toronto’s Hospital for Sick Children to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific tools, we have developed a content delivery and patient data platform, known as RKIA that enables both our own and third party content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients.

 

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 

-

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

-

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

-

submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

-

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

 

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

 

 
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Results of Operations

 

Operating Results

 

Years Ended December 31, 2014 and December 31, 2013

 

Revenues

 

The Company had no revenues during the year ended December 31, 2014 and revenues of $28,206 in the year ended December 31, 2013 which were generated from consulting services to educational institutions.

 

Operating Expenses

 

Total operating expenses for the year ended December 31, 2014 were $452,828, which consisted of salaries of $175,109, rent of $17,525, professional fees of $62,655, insurance expenses of $4,750, travel expenses of $4,379, software development of $173,191 and general and administrative expenses of $15,219. Total operating expenses for the year ended December 31, 2013 were $315,317, which consisted of salaries of $166,055, rent of $13,392, professional fees of $98,865, insurance expenses of $2,936, travel expenses of $1,952 and general and administrative expenses of $32,117.

 

Net Loss

 

Net loss for the year ended December 31, 2014 was $380,088 as compared to a net loss of $221,631 in 2013.

 

Six Months Ended June 30, 2015 and June 30, 2014

 

Revenues

 

The Company had no revenues for the six months ended June 30, 2015 and 2014.

 

Operating Expenses

 

Total operating expenses for the six months ended June 30, 2015 were $133,522, which consisted of salaries of $87,035, rent of $7,108, professional fees of $34,051, insurance expenses of $2,078, travel expenses of $567 and general and administrative expenses of $2,683. Total operating expenses for the year ended December 31, 2013 were $226,119, which consisted of salaries of $10,021, rent of $27,347, professional fees of $2,188, insurance expenses of $2,188, travel expenses of $4,034, software development of $79,762 and general and administrative expenses of $5,241.

 

Net Loss

 

Net loss for the six months ended June 30, 2015 was $133,842 as compared to a net loss of $166,359 for the six months ended June 30, 2014.

 

 
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Liquidity and Capital Resources

 

In 2013 and 2014 we entered into convertible loan agreements with investors, including our President and Chief Executive Officer, and affiliates of his, and a former director, pursuant to which such investors loaned us an aggregate of CDN$490,000. All of the loans were converted into an aggregate of 13,176,094 common shares on December 15, 2014.

 

We received approximately CDN$491,000 in grants in connection with our collaboration with the Hospital and CDN$250,000 from CIIRDF. In addition, we received aggregate gross proceeds of CDN$490,000 pursuant to our convertible loan and an aggregate of CDN$75,000 from the sale of equity securities in December 2014 and March 2015.

 

On July 7, 2015, we closed a private placement offering with seven investors for the sale of $325,000 principal amount of Notes and Warrants to purchase an aggregate of 7,946,210 common shares. Such proceeds are sufficient to enable us to continue our operations f or the next six months based on current plans. If additional cash from the offering is not raised, the Company will need to reduce its cash burn to last 12 months by focusing its efforts on existing products only, leveraging research funding to conduct initial clinical studies on efficacy and postponing the development of the mental health informatics platform and integration and development of new techniques for assessment and rehabilitation.

 

We had cash of $1,748 as of June 30, 2015. We had no commitments for capital expenditures as of December 31, 2014 and June 30, 2015. For the six months ended June 30, 2015 our total operating expenses were $133,522.

 

At June 30, 2015 we had a working capital deficit of $44,738. Current cash on hand is sufficient for our present operations for the next six months.

 

We anticipate that in the future we will require additional funding to acquire research and facilities and for operating costs and we anticipate that such funding will be in the form of equity or debt financing. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our equity or debt to fund the development of our business and to commercialize our products or that any such financing would be on terms favorable to us. Any future financing may involve substantial dilution to existing investors. We do not have any arrangements in place for any future financings, except for the sale of up to an additional $395,000 of common shares as provided in the SPA with the purchasers listed therein.

 

Research and Development

 

In December, 2011, we entered into a collaboration agreement with the OBI and the Hospital. Our collaboration involved research, design, programming and testing a software based cognitive assessment and remediation program. Under the terms of the agreement, primary research and testing processes were undertaken by Hospital, while we were primarily responsible for designing the game play environment, programming and data tools. In March 2014, we completed the development milestones associated with the collaboration. Since March 2014, we have continued to expand the capacity, methods and testing associated with our software. Additionally, in March 2013, we commenced development of RKIA, our mental health informatics platform. This platform will be utilized to host and distribute tools and content developed by us as well as third-party content used in the treatment of mental illnesses.

 

Ongoing research and development is critical to our success. We seek to engage with reputable research and clinical institutions to access and assist tools and methods developed. We hope to finance our research and development with government and research grants and internal funds.

 

Since 2012, we have spent the following amounts on research and development activities: 2012: $97,086 2013: $272,845.18 2014: $415,248.50.

 

 
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Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

Contractual Obligations

 

We do not have any contractual obligations for long-term debt obligations, capital (finance) lease obligations, operating obligations, purchase obligations or other long-term obligation on the balance sheet.

 

Going Concern

 

Our financial statements have been prepared assuming that we will continue as a going concern. It contemplates that assets will be realized and liabilities and commitments satisfied in the normal course of business. We have incurred net losses of $744,472 for the period from October 31, 2011 (inception) to December 31, 2014 and have an accumulated deficit of $744,472 and had a stockholders’ deficit of $626,401 at December 31, 2014. Therefore, there is substantial doubt about our ability to continue operations in the future as a going concern without a significant infusion of capital. At December 31, 2014, the Company had insufficient operating revenues and cash flow to meet its financial obligations.

 

Quantitative and Qualitative Disclosures about Market Risk

 

Foreign Currency Exchange Risk

 

Our exposure to foreign exchange risk is primarily related to fluctuations between the Canadian dollar and the United States dollar. We are exposed to foreign exchange fluctuations on the revaluation of foreign currency assets and liabilities. We maintain working capital in both US and Canadian dollars sufficient for expenditures in their related currencies.

 

Interest Rate Sensitivity

 

We had cash totaling $5,959 as of June 30, 2015. The cash is held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

 

We are not subject to interest rate sensitivity. We do not have holdings subject to interest rates. All cash is held in cash accounts with minimal interest.

 

Recently Issued Accounting Pronouncements Applicable to the U.S.

 

In August, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40) , which now requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued. If conditions or events raise substantial doubt about an entity's ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management's plans, additional disclosures are required. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. These requirements were previously included within auditing standards and federal securities law, but are now included within U.S. GAAP. We have evaluated our disclosures regarding our ability to continue as a going concern and concluded that we are in compliance with the disclosure requirements. 

 

In June, 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915) – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates the concept of a development stage entity ("DSE") from current accounting guidance. We have elected early adoption of this standard, which eliminates the designation of DSEs and the requirement to disclose results of operations and cash flows since inception. 

 

We have evaluated the other recent accounting pronouncements through ASU 2015-02 and believe that none of them will have a material effect on our consolidated financial statements. 

 

 
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DIRECTORS, SENIOR MANAGEMENT , AND EMPLOYEES

 

Directors and Senior Management

 

The following table sets forth the names, ages and positions of our current board members and executive officers:

 

Name

Age

Position(s)

Scott L. Woodrow

43

President and Chief Executive Officer and Director

David Stefansky

43

Director

Jesse Kaplan

33

Director

 

The business address of our officers and directors is c/o 2304101 Ontario Inc., 100 College Street, Suite 213, Toronto, ON M5G 1L58875.

 

Our directors are elected for a term of one year and serve until such director’s successor is duly elected and qualified. Our executive officer serves at the pleasure of the Board. None of our directors have any family relationships with any of our other directors or executive officer.

 

We are not aware of any arrangement or understandings with major shareholders, customers, suppliers or others pursuant to which our officer or directors were selected as a director or officer.

 

Background Information

 

Set forth below is a summary description of the principal occupation and business experience of each of our directors and executive officers for at least the last five years.

 

Scott L. Woodrow has been our President and Chief Executive Officer and a director since [month] 2011. Mr Woodrow was Managing Partner of Lions Peak International Innovation Fund, LP, a Canadian investment fund investing in Israeli hi-tech companies from 2007 to 2013. Mr. Woodrow founded and has been the President and Chief executive Officer of 2304101 Ontario Inc. (doing business as Behavioural Neurological Applications and Solutions), a mental health software company. Mr. Woodrow has also provided consulting services to healthcare research facilities and companies since 2013. From 2007 through 2013, Mr. Woodrow was a director of P-Cure Ltd., a medical device company developing patient positioning and planning systems for radiation therapy for cancer.

 

David Stefansky has been a director since July 7, 2015. Mr. Stefansky is a founder, principal and managing partner of Betzalel Capital Partners, LLC (“Betzalel”) a merchant bank that provides capital formation and strategic advisory services to mid-market private and small to mid-cap public companies in the healthcare, life sciences, and technology sectors since 2013. Prior to forming Bezalel, Mr. Stefansky was a founder and principal of Harborview Capital Advisors, LLC, a New York-based private equity firm (“Haborview”) from 2004 to 2013. Prior to Harborview, Mr. Stefansky worked as an investment banker at Vfinance Investments Inc. where he was responsible for the execution of public offerings and private placements as well as mergers and acquisitions.

 

Jesse Kaplan has been a director since July 7, 2015. Mr. Kaplan has been president of Rocfrim Inc., a private investment company since 2010. Mr. Kaplan, CFA, has been a member of First Republic Capital, a Toronto based investment bank focused on raising capital for small cap public companies, since 2014. Mr. Kaplan was previously a partner at Plaza Ventures, a Toronto based venture capital firm company, from 2010-2013. His career has focused on advising and investing in early stage growth companies. This has included extensive work helping companies through the process of going public in both Canada and the United States. Jesse was previously a senior analyst at Harborview Advisors LLC, a New York based investment firm, from 2007 to 2009 and Palladium Capital Advisors, LLC, a NASD member investment bank, from 2005 to 2006. Mr. Kaplan has served on the boards of various public and private companies in Canada. Mr. Kaplan holds a Bachelor of Commerce degree from the University of Toronto.

 

 
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Involvement in Certain Legal Proceedings

 

We are not aware of any material legal proceedings that have occurred within the past ten years concerning any director, director nominee, or control person which involved a criminal conviction, a pending criminal proceeding, a pending or concluded administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

Executive Compensation.

 

For the Company’s fiscal year ended December 31, 2014, we paid Mr. Woodrow salary in the amount of $175,109and reimbursed him for automobile expenses of $4,208.

 

The Company does not have any pension, retirement or similar benefit plans or any long-term compensation or stock option plans.

 

The Company does not have service contracts with its directors providing for benefits upon termination of employment.

 

We do not maintain key-man life insurance for any of our executive officers or directors.

 

Compensation of Directors

 

No director received any type of compensation from our company for serving as such. No arrangements are presently in place regarding compensation to directors for their services as directors.

 

Auditors

 

Turner, Stone & Company (“Turner”), with an address of 12700 Park Central Drive, Suite 1400, Dallas, Texas 75251 audited the Company’s financial statements for the years ended December 31, 2013 and December 31, 2014. Turner is a member of the American Institute of Certified Public Accountants and is registered with the Public Company Accounting Oversight Board (“PCAOB”) in the United States.

 

We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers. We do not have an audit committee or nominating committee.

 

Potential Conflicts of Interest

 

Since our directors work for other companies, there exists the possibility of conflicts of interest between us, our directors and such other companies. For example, a director may locate a corporate opportunity and present it to another company before presenting it to us. Our directors have been made aware that under certain situations the business opportunity must first be offered to us, depending on the circumstances in which he became aware of the opportunity, the significance of the opportunity to us and whether we should reasonably expect him to make the opportunity available to us. If the situation results in our directors being interested in the matter, the interest will be disclosed to the other board members who shall approve or disapprove of the action. Furthermore, our directors will keep in confidence all confidential information about us. The Company is not aware of any current or potential conflicts of interest with any of our executives or directors.

 

Employees

 

As of December 31, 2014, and currently, we have one employee who is also our sole officer. We do not foresee any significant changes in the number of employees or consultants we will have over the next twelve months, unless and until we become a public reporting company and the development of our business demands it.

 

 
47
 

 

Employment Agreements

 

We have no employment agreements.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table lists, as of September 21, 2015, the number of common shares beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common shares; (ii) each of our executive officers and directors (iii) all officers and directors as a group. Information relating to beneficial ownership of common shares by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder’s address is c/o 2304101 Ontario Inc., 100 College Street, Suite 213, Toronto, ON M5G 1L58875.

 

The percentages below are calculated based on 28,072,366 common shares issued and outstanding on September 21, 2015.

 

Name of Beneficial Owner

 

Number of

Shares

Beneficially

Owned

 

 

Percentage 

 

 

 

 

 

 

 

 

5% or Greater Shareholders

2110345 Ontario Inc.(1)

 

 

9,153,269

 

 

 

32.60 %
 

 

 

 

 

 

 

 

 

NView Management Inc.(2)

 

 

5,363,760

 

 

 

19.10 %
 

 

 

 

 

 

 

 

 

Romema Holdings Inc.(3)

 

 

5,000,000

 

 

 

17.81 %
 

 

 

 

 

 

 

 

 

Directors and executive officers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scott Woodrow

 

 

19,777,241 (4)

 

 

63.24 %
 

 

 

 

 

 

 

 

 

David Stefansky

 

 

3,178,484 (5)

 

 

10.17 %
 

 

 

 

 

 

 

 

 

Jesse Kaplan

 

 

697,248 (6)

 

 

2.48 %

All officers and directors as a group (3 persons)

 

 

23,652,973 (4)(5)(6)

 

 

68.66 %

____________  

(1)

Scott Woodrow, President of 2110345 Ontario Inc. (“2110345 Ontario”), has sole voting and dispositive power over shares held by 2304101 Ontario.

 

 
48
 

 

(2)

Scott Woodrow, President of NView Management Inc. (“NView”), has sole voting and dispositive power over shares held by NView. NView owns 100% of the voting shares of 2110345 Ontario.

(3)

Leopold Grunwald, director of Romema Holdings Inc.(“Romema”) has sole voting and dispositive power over shares held by Romema

(4)

Includes (i) a currently exercisable option to purchase 3,200,000 common shares at an exercise price of $0.0001 per share, and (ii) shares held by 2110345 Ontario and NView over which Mr. Woodrow has sole voting and dispositive power.

(5)

Represents (i) 1,589,242 shares issuable upon the conversion of a Note and (ii) 1,589,242 shares issuable upon the exercise of a Warrant.

(6)

Represents shares held by Rocpart Inc. (“Rocpart”) over which Mr. Kaplan, as President of Rocpart has sole voting and dispositive power.

 

Our major shareholders do not have voting rights that differ from the other holders of our voting common shares.

 

As of September 21, 2015, none of our outstanding common shares were held by shareholders of record in the United States. We are not aware of any arrangement that may at a subsequent date, result in a change of control of our company. Each selling shareholder named above acquired its shares in offerings that were exempted from registration under the Securities Act because such offerings involved either private placements or offshore sales to non-U.S. persons.

 

There was no significant change in percentage ownership during the last three years. The issuance of 13,176,093 common shares in 2013 and 2014 under the Convertible Loan Agreement was to Scott Woodrow and his affiliates and did not result in a significant change in majority ownership of the Company’s common shares.

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Certain Relationships and Related Transactions

 

Other than the transactions described below, since January 1, 2012, there were no related party transactions.

 

We paid NView management fees of $67,086 and $24,899 in 2012 and 2013, respectively, for services provided to us. Mr. Woodrow, our President, Chief Executive Officer and a director, is the President and holds all of the voting shares of NView.

 

On December 31, 2013, we issued a ten-year immediately exercisable option to purchase 32 common shares at an exercise price of $1.00 (3,200,000 shares at an exercise price of $0.0001 per share on a post spit basis) to Scott Woodrow.

 

On each of January 20, 2014 and March 25, 2014, we entered into a convertible loan agreement with NView pursuant to which NView agreed to loan us $20,000 and $50,000, respectively The loan accrued interest at 18% and was converted into an aggregate of 1,863,760 common shares on December 15, 2014. Mr. Woodrow, our President, Chief Executive Officer and a director, is the President and holds all of the voting shares of NView.

 

On March 3, 2014, we entered into a convertible loan agreement with 2110345 Ontario pursuant to which 2110345 Ontario agreed to loan us $140,000. The loan accrued interest at 18% and was into an aggregate of 4,153,269 common shares on December 15, 2014. Mr. Woodrow, our President, Chief Executive Officer and a director, is the President of 2110345 Ontario which is 100% owned by NView.

 

On October 31, 2014, we entered into a convertible loan agreement with Scott Woodrow, our President, Chief Executive Officer and a director, pursuant to which Mr. Woodrow agreed to loan us $90,000. The loan accrued interest at 18% and was converted into an aggregate of 2,060,212 common shares on December 15, 2014.

 

On each of March 3, 2014 and March 11, 2014, we entered into a convertible loan agreement with Leopold Grunwald, a former director of our company, pursuant to which Mr. Woodrow agreed to loan us an aggregate of $20,000. The loan accrued interest at 18% and was converted into an aggregate of 532,413 common shares on December 15, 2014.

 

 
49
 

 

On March 3, 2014, we entered into a convertible loan agreement with Rocpart, pursuant to which Rocpart agreed to loan us $25,000. The loan accrued interest at 18% and was converted into 697,248 common shares on December 15, 2014. Jesse Kaplan, a director of our company, is President and a director of Rocpart and has sole voting and dispositive power over shares held by Rocpart.

 

Jesse Kaplan, a director of the Company is a party to and acted as collateral agent under the General Security Agreement, dated July 7, 2015, between Jesse Kaplan, as Collateral Agent and the Company.

 

EXPENSES OF ISSUANCE AND DISTRIBUTION

 

We have agreed to pay all expenses incident to the offering and sale of the shares being registered other than any commissions and discounts of underwriters, dealers or agents and any transfer taxes, which shall be borne by the selling shareholders. The expenses which we are paying are set forth in the following table. All of the amounts shown are estimates except the SEC registration fee.

 

SEC filing fee

 

$ 165.58

 

Legal fees and expenses

 

$ 30,000 *

Accounting fees and expenses

 

$ 30,000 *

Total

 

$ 60,165.58

 

_____________
*Estimated

 

ADDITIONAL INFORMATION

 

Foreign Private Issuer

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, as applicable to foreign private issuers. Accordingly, we have filed a registration statement on Form F-1 under the Securities Act of 1933, as amended, relating to the common shares being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of 2304101Ontario Inc. filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

 

We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at 100 F Street NE, Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at 100 F Street NE, Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC's Internet website at http://www.sec.gov.

 

As a "foreign private issuer," we are exempt from the rules under the Exchange Act prescribing certain disclosure and procedural requirements for proxy solicitations. Also, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act and the rules thereunder, with respect to their purchases and sales of securities. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act.

 

We furnish our stockholders with annual reports containing audited financial statements. You may request, at no cost, a copy of any documents incorporated by reference herein, excluding all exhibits, unless we have specifically incorporated by reference an exhibit, by writing us at: 2304101Ontario Inc., 100 College Street, Suite 213, Toronto, ON M5G 1L5, or telephoning (416) 435-9112.

 

 
50
 

 

ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES AND
AGENT FOR SERVICE OF PROCESS IN THE UNITED STATES

 

We are incorporated in Canada, our executive officer and two of our directors are nonresidents of the United States, and a substantial portion of our assets and of such persons are located outside the United States. For further information regarding enforceability of civil liabilities against the Company and certain other persons, see " Risk Factors— Because we are organized under the Canada Business Corporations Act, enforceability of civil liabilities against us or our officer or directors may be difficult or impossible from outside the jurisdiction of Canada ."

 

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Our By-laws provide to the fullest extent permitted by the CBCA, our directors or officers, former directors and officers, and persons who act at our request as a director or officer of a body corporate of which we are a shareholder or creditor shall be indemnified by us.

 

Under the OBCA, we may indemnify our current or former directors or officers or another individual who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of his or her association with us or another entity. However, indemnification is prohibited under the OBCA unless the individual:

 

 

·

acted honestly and in good faith with a view to our best interests, or the best interests of the other entity for which the individual acted as director or officer or in a similar capacity at our request; and

 

 

 

 

·

in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the individual had reasonable grounds for believing that his or her conduct was lawful.

 

Our By-laws require us to indemnify each of our current or former directors or officers and each individual who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity, against all costs, charges and expenses, including, without limitation, an amount paid to settle an action or satisfy a judgment, reasonably incurred by the individual in respect of any civil, criminal, administrative, or other proceeding in which the individual is involved because of his or her association with us or another entity.

 

Our By-laws authorize us to purchase and maintain insurance for the benefit of each of our current or former directors or officers and each person who acts or acted at our request as a director or officer, or an individual acting in a similar capacity, of another entity.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to such directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

LEGAL MATTERS

 

David Lubin & Associates, PLLC has opined on the validity of the shares being offered hereby.

 

EXPERTS

 

The financial statements included in this prospectus and in the registration statement for the fiscal years ended December 31, 2014 and December 31, 2013 have been audited by Turner, Stone & Company, an independent registered public accounting firm and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

 

 
51
 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 


Item 6. Indemnification of Directors and Officers

 

Our By-laws provide that to the fullest extent permitted by the OBCA, the Company shall indemnify a director or officer of the Company, a former director or officer of the Company, or a person who acts or has acted at the Company’s request as a director or officer of a body corporate of which we are a shareholder or creditor.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and control persons pursuant to the foregoing provisions or otherwise, we have been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy, and is, therefore, unenforceable.

 

Item 7. Recent Sales of Unregistered Securities

 

During the past three years, the registrant has sold the following securities which were not registered under the Securities Act of 1933, as amended.

 

In 2013 and 2014 we entered into convertible loan agreements with eleven investors, pursuant to which such investors loaned us an aggregate of $490,000. All of the loans accrued interest at 18% and were converted into an aggregate of 13,176,093 common shares on May 15, 2015 with an aggregate conversion value of CDN$561,109.

 

On May 15, 2015, we sold an aggregate of 930,848 shares for gross proceeds of CDN$50,000 in a private offering to accredited investors.

 

The above transactions involved non-U.S. persons not citizens or residents of the United States.

 

On July 7, 2015, we entered into the Purchase Agreement with the selling shareholders pursuant to which we agreed to sell a minimum of $320,000 and a maximum of $770,000 of Notes and Warrants pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder. An aggregate of $325,000 of Notes and Warrants was sold, representing an aggregate of 7,946,210 common shares issuable upon the conversion of the Notes and an aggregate of 7,946,210 issuable upon the exercise of the Warrants.

 

None of the above issuances involved any underwriters, underwriting discounts or commissions, or any public offering and we believe were exempt from the registration requirements of the Securities Act of 1933. All recipients had adequate access, through their relationships with us, to information about us.

 

 
52
 

 

Item 8. Exhibits and Financial Statement Schedules

 

Exhibit

Number

Description

3.1

Articles of Incorporation

3.2

Articles of Amendment to the Articles of Incorporation dated November 30, 2011

3.3

Articles of Amendment to the Articles of Incorporation dated May 13, 2015

3.4

Articles of Amendment to the Articles of Incorporation dated June 26, 2015

3.5

Bylaws

5.1**

Opinion of David Lubin & Associates, PLLC

10.1

Form of Convertible Loan Agreement

10.2

Securities Purchase Agreement, dated July 7, 2015, between the Company and the purchasers identified therein

10.3

Form of Secured Convertible Note, dated July 7, 2015

10.4

Form of Common Stock Purchase Warrant, dated July 7, 2015

10.5

Registration Rights Agreement, dated July 7, 2015, between the Company and the purchasers identified therein

10.6

General Security Agreement, dated July 7, 2015, between Jesse Kaplan, as Collateral Agent and the Company

10.7

Escrow Agreement, dated July 7, 2015, between the Company, the purchasers identified therein and Grushko & Mittman, P.C.

10.8

Form of Lock Up Agreement

10.9

License Agreement, dated April 24, 2015, between the Company and The Governing Counsel of the University of Toronto

10.10

Consulting Agreement, dated February 19, 2014, between the Company and Sticky Brain Studios

10.11

Consulting Agreement, dated June 1, 2012, between the Company and Russell Schachar

10.12

Cooperation and Project Funding Agreement, dated June 7, 2012, between the Company and Canada-Israel Industrial Research and Development Foundation

10.13

Memoradum of Understanding, dated December 8, 2011, between the Company and Hospital for Sick Children, as amended

10.14

Collaboration Agreement, dated December 8, 2011 between the Company, the Ontario Brain Institute, and the Hospital for Sick Children

10.15

Stock Option Agreement, dated December 31, 2013, between the Company and Scott Woodrow

10.16

Stock Option Agreement, dated June 1, 2013, between the Company and Neil Closner

10.17

Stock Option Agreement, dated June 1, 2012, between the Company and Russell Schachar

10.18 

 

Software License Agreement, dated December 9, 2014, between the Company and Pear Therapeutics, Inc

23.1

 

Consent of Independent Registered Public Accounting Firm

23.2

 

Consent of David Lubin & Associates, PLLC (included in Exhibit 5.1)

101.INS

XBRL Instance Document*

101.SCH

XBRL Taxonomy Extension Schema Document*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB

XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document*

____________  

 ** To be filed 

 

 
53
 

 

Item 9. Undertakings

 

The undersigned Company hereby undertakes:

 

(a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

i.

To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

 

ii.

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.

 

iii.

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;


(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability of the Company under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Company undertakes that in a primary offering of securities of the undersigned Company pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Company will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)

Any preliminary prospectus or prospectus of the undersigned Company relating to the offering required to be filed pursuant to Rule 424;

 

(ii)

Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Company or used or referred to by the undersigned Company;

 

(iii)

The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Company or its securities provided by or on behalf of the undersigned Company; and

 

(iv)

Any other communication that is an offer in the offering made by the undersigned Company to the purchaser.

 

(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the Company is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue. 

 

 
54
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Toronto, Ontario, Canada, on September 24, 2015.

 

2304101 Ontario Inc.

By:

/s/ Scott L. Woodrow

Scott L. Woodrow

President and Chief Executive Officer

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

September 24, 2015

By:

/s/ Scott L. Woodrow

 

 

Scott L. Woodrow

 

 

 

President and Chief Executive Officer

 

 

 

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 

 

September 24, 2015

By:

/s/ David Stefansky

David Stefansky

   

September 24, 2015

By:

/s/ Jesse Kaplan

Jesse Kaplan

Director

 

 
55
 

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Stockholders

2304101 Ontario, Inc. o/a Behavioural

Neurological Applications and Solutions

Toronto, Ontario

 

We have audited the accompanying balance sheets of Behavioural Neurological Applications and Solutions (the “Company”), as of December 31, 2014 and 2013, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Behavioural Neurological Applications and Solutions as of December 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company requires a substantial amount of additional financing to fund product development and continue operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Turner, Stone & Company, L.L.P.

Certified Public Accountants

September 17, 2015

  
 
F-1
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

BALANCE SHEETS

December 31, 2014 and December 31, 2013

 

 

 

2014

 

 

2013

 

 

 

$

 

 

$

 

ASSETS 

 

 

 

 

 

 

Current Assets 

 

 

 

 

 

 

Cash 

 

 

596

 

 

 

12,324

 

Other receivables

 

 

5,658

 

 

 

1,698

 

Prepaid expenses

 

 

4,469

 

 

 

4,513

 

Refundable taxes receivable

 

 

192,337

 

 

 

84,313

 

Advances to related parties (Note 4)

 

 

8,770

 

 

 

-

 

Total current assets 

 

 

211,830

 

 

 

102,848

 

TOTAL ASSETS 

 

 

211,830

 

 

 

102,848

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT 

 

 

 

 

 

 

 

 

Current Liabilities 

 

 

 

 

 

 

 

 

Accounts payable 

 

 

160,513

 

 

 

334

 

Accrued interest on convertible notes

 

 

61,297

 

 

 

10,975

 

Total current liabilities

 

 

221,810

 

 

 

11,309

 

Long term liabilities

 

 

 

 

 

 

 

 

Development grant

 

 

193,950

 

 

 

211,545

 

Convertible notes

 

 

422,471

 

 

 

225,648

 

Total long term liabilities

 

 

616,421

 

 

 

437,193

 

Total Liabilities

 

 

838,231

 

 

 

448,502

 

Commitments (note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, no par value, unlimited authorized, 13,965,424 issued and outstanding (2013 – 13,500,000 issued and outstanding)

 

 

21,550

 

 

 

1

 

Accumulated deficit 

 

 

(744,472 )

 

 

(364,384 )

Accumulated other comprehensive income

 

 

96,521

 

 

 

18,729

 

Total stockholders' deficit 

 

 

(626,401 )

 

 

(345,654 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 

 

 

211,830

 

 

 

102,848

 

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-2
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

 

 

 

For the years ended December 31,

 

 

 

2014

 

 

2013

 

 

 

$

 

 

$

 

Revenue 

 

 

-

 

 

 

28,206

 

 

 

 

 

 

 

 

 

 

Operating Expenses 

 

 

 

 

 

 

 

 

Salaries

 

 

175,109

 

 

 

166,055

 

Rent

 

 

17,525

 

 

 

13,392

 

Professional fees 

 

 

62,655

 

 

 

98,865

 

Insurance

 

 

4,750

 

 

 

2,936

 

Travel 

 

 

4,379

 

 

 

1,952

 

Software development

 

 

173,191

 

 

 

-

 

General and administrative 

 

 

15,219

 

 

 

32,117

 

Total operating expenses 

 

 

452,828

 

 

 

315,317

 

Operating Loss

 

 

(452,828 )

 

 

(287,111 )
 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

Interest and bank charges, net 

 

 

(511 )

 

 

(7,498 )

Interest on convertible notes

 

 

(58,822 )

 

 

(11,334 )

Total other expenses

 

 

(59,333 )

 

 

(18,832 )

Loss before taxes

 

 

(512,161 )

 

 

(305,943 )

Less: Refundable taxes

 

 

132,073

 

 

 

84,312

 

Net loss

 

 

(380,088 )

 

 

(221,631 )

Other Comprehensive income

 

 

 

 

 

 

 

 

 Foreign exchange translation adjustment

 

 

77,792

 

 

 

19,628

 

Total other comprehensive income

 

 

77,792

 

 

 

19,628

 

Comprehensive loss

 

 

(302,296 )

 

 

(202,003 )
 

The accompanying notes are an integral part of these financial statements. 

 

 
F-3
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED

DECEMBER 31, 2014 AND 2013

 

 

 

2014

 

 

2013

 

 

 

$

 

 

$

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Comprehensive loss 

 

 

(302,296 )

 

 

(202,003 )

Adjustments to reconcile comprehensive loss to net  cash used in operating activities: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

Other receivables

 

 

(3,960 )

 

 

2,216

 

Prepaid expenses and deposits

 

 

44

 

 

 

(1,474 )

Accounts payable 

 

 

160,179

 

 

 

(3,071 )

Accrued interest on convertible notes

 

 

50,322

 

 

 

10,975

 

Advances to related parties 

 

 

(8,770 )

 

 

3,517

 

Refundable taxes receivable

 

 

(108,024 )

 

 

(84,313 )

Net cash used in operating activities 

 

 

(212,505 )

 

 

(274,153 )

CASH FLOWS FROM FINANCING ACTIVITIES 

 

 

 

 

 

 

 

 

Proceeds from convertible note

 

 

196,823

 

 

 

225,648

 

Proceeds from sale of common stock 

 

 

21,549

 

 

 

-

 

Increase (decrease) in development grant

 

 

(17,595 )

 

 

60,780

 

Net cash provided by financing activities 

 

 

200,777

 

 

 

286,428

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash 

 

 

(11,728 )

 

 

12,275

 

Cash, beginning of year

 

 

12,324

 

 

 

49

 

Cash, end of year 

 

 

596

 

 

 

12,324

 

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-4
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENT OF STOCKHOLDERS’ DEFICIT

 

 

 

Commons tock

 

 

 

 

 

 

    Accumulated Other Comprehensive

  Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Accumulated deficit

 

 

 Income (Loss)

 

 

 deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

 

135

 

 

$ 1

 

 

$ (142,753 )

 

$ (899 )

 

$ (143,651 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of 1for 100,000 stock split on May 14, 2015

 

 

13,499,865

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

As restated, December 31, 2012

 

 

13,500,000

 

 

 

1

 

 

 

(142,753 )

 

 

(899 )

 

 

(143,651 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

(221,631 )

 

 

 

 

 

 

(221,631 )

Foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,628

 

 

 

19,628

 

Balance December 31, 2013

 

 

13,500,000

 

 

 

1

 

 

 

(364,384 )

 

 

18,729

 

 

 

(345,654 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for cash

 

 

465,424

 

 

 

21,549

 

 

 

 

 

 

 

 

 

 

 

21,549

 

Net loss

 

 

 

 

 

 

 

 

 

 

(380,088 )

 

 

 

 

 

 

(380,088 )

Foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,792

 

 

 

77,792

 

Balance December 31, 2014

 

 

13,965,424

 

 

$ 21,550

 

 

$ (744,472 )

 

$ 96,521

 

 

$ (626,401 )

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-5
 

 

2304101 ONTARIO INC.
O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

NOTES TO FINANCIAL STATEMENTS

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Organization and General Description of Business

 

Behavioural Neurological Applications and Solutions (“We” or “the Company”), was incorporated under the laws of the Province of Ontario on October 31 2011.

 

The Company is a cognitive software development company with a primary focus on the development of software based assessment and remediation software for children used in the professional assessment and treatment of cognitive disabilities. The Company entered into a collaboration with Toronto’s Hospital for Sick Children [“SickKids”]to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific applications, the Company has developed a content delivery and patient data platform that enables both its own and third party content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients .

 

B. Basis of Presentation

 

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2014, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

Revenue Recognition

 

The following criteria must be met in determining whether revenue may be recorded: (1) persuasive evidence of a contract exists; (2) software has been delivered and/or services have been provided; (3) the price is fixed or determinable; and (4) collection is reasonably assured.

 

Revenue is recorded as the software is delivered and/or services are provided based on the relative fair value of each element. Unbilled receivables are created when services are performed or software is delivered and revenue is recognized in advance of billings. Deferred revenue is created when billing occurs in advance of performing services or when all revenue recognition criteria have not been met.

 

We generate revenue from the following sources: (1) Software revenue, (2) Software as a Service [“SaaS”], and (3) Services revenue.

 

Software Revenue : Our Software revenue is comprised of traditional software license fees, maintenance and support fees, and fees from the resale of third-party software licenses. These software license fees include term licenses, perpetual licenses and rental fees. Maintenance and support are generally offered under annual or multi-year terms and are billed either monthly or annually in advance. Our maintenance and support provides customers with periodic technology updates and interactive support related to our software. Maintenance and support revenue is recognized ratably over the stated term.

 

Services Revenue : Our services offerings help customers to install, optimize and integrate the Company’s software into their computing environment. For fixed-fee professional services contracts, revenue is recorded based upon proportional performance, measured by the actual number of hours incurred divided by the total estimated number of hours for the project. Changes in the estimated costs or hours to complete the contract, and losses, if any, are reflected in the period during which the change or loss becomes known. The Company also provides professional services on a time and materials basis, recognized monthly based upon hours incurred to date. In all cases, contract milestones, project risk profile and refund provisions are taken into consideration.

 

 
F-6
 

 

Foreign Currency Translation

 

The functional currency of the Company’s foreign operations is generally the local currency of the country in which the operation is located. All assets and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expenses are translated using average exchange rates during the period. Increases and decreases in net assets resulting from currency translation are reflected in stockholders’ deficit as a component of accumulated other comprehensive income (loss).

 

Software Products and Research and Development

 

Software development costs are expensed as incurred and consist primarily of design and development costs of new products, and significant enhancements to existing products incurred before the establishment of technological feasibility. Costs incurred subsequent to technological feasibility of new and enhanced products, costs incurred to purchase or to create and implement internal-use software, and software obtained through business acquisitions are capitalized. Such costs are amortized over the estimated useful lives of the related products, using the straight-line method.

 

Income Taxes

 

Income tax expense is based on income before income taxes, and is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded when it is not more likely than not that a deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Considerable judgment is required in assessing and estimating these amounts and the difference between the actual outcome of these future tax consequences and the estimates made could have a material impact on the operating results. To the extent that new information becomes available which causes the Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.

 

The Company makes claims for Scientific Research and Experimental Development (“SRED”) expenditures which are included in refundable taxes receivable. Judgment is required in the determination of qualifying expenses. The final determination of qualifying expenses is not known until acceptance by tax authorities. The Company's SRED credits are recorded on the balance sheet after review of the relevant accounting pronouncements and recorded as refundable taxes receivable once acceptance by tax authorities has occurred.

 

Cost of Sales and Direct Operating Expenses

 

Cost of sales and direct operating expenses represents the cost of providing the Company’s software and services offerings to customers and excludes depreciation, amortization and the cost of maintenance.

 

Recent Pronouncements

 

During the years December 31, 2014 and 2013 and through September 17, 2015 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

 
F-7
 

 

C. Risks and Uncertainties

 

Business Risk

 

The Company is in its early stages and relies on third-party contractors for the research and development activities related to its products. Should the agreements with the Company’s contractors terminate, the Company may experience disruption in is research and development activities until such time replacements can be contracted or hired.

 

Foreign Currency Risk

 

The Company is exposed to fluctuations in the exchange rate between the United States dollar and the Canadian dollar. The Company’s continued financing activities are primarily in United States dollars while the Company’s expenditures are primarily in Canadian dollars. Should the exchange rate between the Canadian dollar and the United States dollar fluctuate, the Company may be exposed to resource constraints.

 

2. GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported an accumulated deficit of $744,472 and had a comprehensive loss of $302,296 for the year ended December 31, 2014.

 

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. At December 31, 2014, the Company had insufficient operating revenues and cash flow to meet its financial obligations. There can be no assurance that management will be successful in implementing its plans. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company raised $325,000 through a private placement for convertible notes subsequent to the year end (see note 10). As a result of this funding, the Company is expected to have sufficient cash flows to operate for at least the next 12 months. See subsequent events note. Notwithstanding, we anticipate that we will have to raise additional capital to fund research and development and operations over the next 12 months. To the extent that we are required to raise additional funds and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, other than those described in the subsequent events note, no guaranties that any other such financings would be forthcoming, or as to the terms of any such financings. Any future financing may involve substantial dilution to existing investors.

 

3. FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

ASC Topic 820,  Fair Value Measurement , establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Refundable taxes, accounts payable, development grant and convertible notes are all stated at book value due to the term and nature of such items.

 

 
F-8
 

 

4. RELATED PARTY TRANSACTIONS

 

At December 31, 2014, a total of $8,770 (December 31, 2013: $- ) in advances was due from Scott Woodrow, the Chief Executive Officer of the Company. The loan amounts due are non-interest bearing, unsecured and have no specified terms of repayment.

 

At December 31, 2014, the principal amounts of Convertible Notes to related parties were as follows:

 

Related Party

 

Position

 

Amount

 

 

 

 

 

 

 

 

Scott L Woodrow

 

CEO and Director

 

$ 77,580

 

2110345 Ontario Inc.

 

Shareholder, company controlled by CEO

 

 

120,680

 

NView Management Inc.

 

Shareholder, company controlled by CEO

 

 

60,340

 

Leopold E Grunwald

 

Director

 

 

17,240

 

 

 

 

 

 

 

 

 

 

 

 

$ 275,840

 

 

At December 31, 2013, the principal amounts of Convertible Notes to related parties were as follows:

 

Related Party

 

Position

 

Amount

 

 

 

 

 

 

 

2110345 Ontario Inc.

 

Shareholder, company controlled by CEO

 

$ 131,628

 

 

For the year ended December 31, 2014, the following related party compensation was recorded:

 

Related Party

 

Position

 

Amount

 

 

 

 

 

 

 

 

Scott L Woodrow

 

CEO and Director

 

$ 175,109

 

 

For the year ended December 31, 2013, the following related party compensation was recorded:

 

Related Party

 

Position

 

Amount

 

 

 

 

 

 

 

 

Scott L Woodrow

 

CEO and Director

 

$ 166,054

 

NView Management Inc.

 

Shareholder, company controlled by CEO

 

 

24,175

 

 

See Note 6- Stock Based Compensation for details of stock issuances to director and officers for services rendered.

 

 
F-9
 

 

5. CONVERTIBLE NOTES

 

As at December 31, 2014, a total of $422,471 (December 31, 2013: $225,648) of convertible notes were outstanding. Convertible notes bear interest at a rate of 18% per annum and are convertible into common stock at a 25% discount to the issue price of a qualified financing. On December 15, 2014, the Company entered into a qualified financing at a price CDN$0.0537 per share. Total interest and principal of notes outstanding at December 31, 2014 was CDN$561,109 which resulted in the issuance of 13,176,093 common shares on May 15, 2015.

 

6. STOCK BASED COMPENSATION

 

Under the terms of the Company’s consulting agreement with Dr. Russell Schachar, Dr. Schachar received a grant of stock options to purchase up to 2,300,000 shares of the Company’s common stock in accordance with the following vesting schedule:

 

a.

1,300,000 of the Option Shares shall vest on June 1, 2014

b.

600,000 of the Option Shares shall vest on June 1, 2015

c.

400,000 of the Option Shares shall vest on June 1, 2016.

 

The options allow for the purchase of common shares at an exercise price of equivalent to 50% of the market value of the common stock at the date of exercise. The options expire on June 1, 2024.

 

Under the terms of the Company’s consulting agreement with Neil Closner, Mr. Closner received a grant of stock options to purchase up to 2,700,000 shares of the Company’s common stock. The options granted were fully vested as of the grant date of June 1, 2013. The options allow for the purchase of common shares at an exercise price of CDN$0.00001and expire 10 years from the issuance date.

 

Under the terms of the Company’s compensation agreement with Mr. Scott Woodrow, Mr. Woodrow received a grant of stock options to purchase up to 3,200,000 shares of the Company’s common stock. The options granted were fully vested as of the grant date of December 31, 2013. The options allow for the purchase of common shares at an exercise price of CDN$0.00001 and expire 10 years from the issuance date. Mr. Woodrow is the CEO and Director of the Company.

 

No compensation expense was recorded in connection with the above options as such amount was deemed immaterial.

 

Summary Stock Compensation Table

 

The following table sets forth the Company’s paid or accrued stock compensation expense to its officers, directors, employees and contractors.

 

 

 

Stock Awards

 

 

Stock Options Awards

 

 

Non-Vested Stock Awards

 

 

Securities Underlying Non-Vested Stock

 

 

Total

 

Year ended December 31, 2013

 

$ -

 

 

$ -

 

 

$ -

 

 

 

-

 

 

$ -

 

Year ended December 31, 2014

 

$ -

 

 

$ -

 

 

$ -

 

 

 

5,500,000

 

 

$ -

 

 

 
F-10
 

 

A Summary of the status of the Company’s option grants as of December 31, 2014 and 2013 and the changes during the periods ten ended is presented below:

 

 

 

Shares

 

 

Weighted-Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

(in Years)

 

 

Aggregate Intrinsic Value

 

Outstanding December 31, 2012

 

 

2,300,000

 

 

$ 0

 

 

 

7.5

 

 

$ -

 

Granted

 

 

5,900,000

 

 

 

 

 

 

 

 

 

 

 

-

 

Exercised

 

 

-

 

 

 

0

 

 

 

8.5

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding December 31, 2013

 

 

8,200,000

 

 

$ 0

 

 

 

8.5

 

 

 

-

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding December 31, 2014

 

 

8,200,000

 

 

$ -

 

 

 

8.5

 

 

$ -

 

 

The weighted average fair value at the grant date for options during the years ended December 31, 2014 and 2013 was estimated using the Black-Scholes option valuation model with the following inputs:

 

Average expected life in years

 

 

10

 

Average risk-free interest rate

 

 

2.00 %

Average volatility

 

 

100 %

Dividend yield

 

 

0 %

  

Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based on historical data and other relevant factors such as capital structure and the nature of the Company as a development stage company.

 

In calculating the expected life of stock options, the Company determines the amount of time from grant date to contractual term date for vested options. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options.

 

 
F-11
 

 

A summary of the status of the Company’ vested and non-vested option grants at December 31, 2014 and the weighted average grant date fair value is presented below:

 

 

 

Shares

 

 

Weighted Average Grant Date

Fair Value per Share

 

 

Weighted Average Grant Date

Fair Value

 

Vested

 

 

7,200,000

 

 

$ 0.00

 

 

$ 0

 

Non-vested

 

 

1,000,000

 

 

 

0.00

 

 

$ 0

 

Total

 

 

8,200,000

 

 

$ 0.00

 

 

$ 0

 

 

7. DEVELOPMENT GRANT

 

On June 7, 2012, the Company entered into a project funding agreement with the Canada-Israel Research and Development Foundation (“CIIRDF”). The purpose of the grant was to fund the Company’s activities related to the development of a cognitive assessment and treatment platform for childhood attention deficit disorder and attention hyperactivity disorder (the “Development”). Under the terms of the grant, CIIRDF would fund up to CDN$300,000 of development activities related to the Development. The grant is repayable to CIIRDF based on 2.5% of annual gross sales related to products developed from the Development. The Company received CDN$225,000 from CIIRDF to fund the Development.

 

8. INCOME TAXES

 

The Company computes income taxes using the asset and liability approach. The Company currently has no issue that creates timing differences that would mandate a deferred tax expense. Due to the uncertainty as to the utilization of net operating loss carryforwards, a valuation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income has been recorded for the years ended December 31, 2014 and December 31, 2013 due to the Company’s net operating loss carryforward from prior years.

 

The Company is entitled to refundable SRED tax credits for qualifying research and development activities performed in Canada. The Company recognizes the benefit of its SRED tax credits when there is reasonable assurance that they will be realized. During the year ended December 31, 2014, the Company claimed $132,073 (2013 - $84,312) of SRED tax credits. Subsequent to December 31, 2014, the Company received SRED tax credits for $132,073 and $84,312. Consequently, the Company has recorded the related SRED tax credits in the year in which the underlying expenditures occurred.

 

The Company’s expected income tax rate for 2014 is 15.5% (2013 - 15.5%). The Company has net operating losses totaling CDN$428,042 (2013 - $CDN$241,351) that can be carried forward over 20 years.

 

 
F-12
 

 

Deferred Income Taxes

 

Deferred income taxes primarily represent the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of the Company’s deferred taxes are as follows:

 

 

 

2014

 

 

2013

 

Deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

Net operating loss carryforward

 

$ 66,346

 

 

$ 37,409

 

Total deferred tax assets

 

 

66,346

 

 

 

37,409

 

Valuation Allowance

 

 

(66,346 )

 

 

(37,409 )

Net Deferred tax assets

 

$ -

 

 

$ -

 

 

9. COMMITMENTS

 

On December 8, 2011 the Company entered into a Collaboration Agreement between The Hospital for Sick Children (“SickKids”) and the Ontario Brain Institute (“OBI”). Under the terms of the Collaboration Agreement, the OBI agreed to fund SickKids activities related to the development of a software based treatment program for Attention Deficit and Hyperactivity Disorder in children (the “Project”). Funding of SickKids by the OBI was based on a Project budget of CDN$491,204 in which the Company was to contribute at least the same financial commitments for its own activities under the Project. During the Project period from December 8, 2011 to March 31, 2014, the Company contributed approximately CDN$540,000 consisting of CDN$437,400 of salaries and consulting fees, CDN$50,000 of software development and CDN$53,000 of equipment, supplies and overhead. Under the terms of the Collaboration Agreement, Project activities were to be substantially completed by March 31, 2014. Under the terms of the Collaboration Agreement, the Company is obligated to pay SickKids a minimum royalty on Project intellectual property of the amount of the Development Grant CDN$491,204. Under the terms of the royalty agreement between the Company and SickKids, such payments are to be made based on 5% of net revenue for the first CDN$15,000,000 of related Project product and 2.5% of net revenue thereafter.

 

10. SUBSEQUENT EVENTS

 

On May 14, 2015, the Company filed Articles of Amendment to effect a stock split on a 100,000 for 1 basis. The effect of the Stock Split was to increase the number of outstanding Common Shares from 135 to 13,500,000. These financial statements are presented to reflect the stock split retroactively.

 

On May 15, 2015, the Company received a $50,000 Subscription and issued 930,848 Common Shares thereon.

 

On May 15, 2015, Convertible Notes with a conversion value of CDN$561,109 were converted to common stock based on the conversion terms of the note. As a result of the conversion, 13,176,093 common shares were issued to holders of the Convertible Notes.

 

On July 7, 2015, the Company closed a financing transaction and received total proceeds of $325,000 for the sale of convertible notes and warrants. Under the terms of the financing, the secured notes will convert to common stock at a conversion price of $0.0409 per share. 794,621 shares were reserved for Purchase Warrants issued under the financing at an exercise price of $0.0818 per share.

 

 
F-13
 

 

2304101 ONTARIO INC.
O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS
BALANCE SHEETS
JUNE 30, 2015 AND JUNE 30, 2014
(UNAUDITED)

 

 

 

2015

 

 

2014

 

 

 

$

 

 

$

 

ASSETS 

 

 

 

 

 

 

Current Assets 

 

 

 

 

 

 

Cash 

 

 

1,748

 

 

 

2,127

 

Other receivables

 

 

5,959

 

 

 

7,069

 

Prepaid expenses

 

 

2,078

 

 

 

2,249

 

Refundable taxes receivable

 

 

106,989

 

 

 

84,045

 

Total current assets 

 

 

116,774

 

 

 

95,490

 

TOTAL ASSETS 

 

 

116,774

 

 

 

95,490

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT 

 

 

 

 

 

 

 

 

Current Liabilities 

 

 

 

 

 

 

 

 

Accounts payable 

 

 

160,048

 

 

 

118,570

 

Accrued interest on convertible notes

 

 

-

 

 

 

35,699

 

Advance from related parties (Note 4)

 

 

1,464

 

 

 

4,311

 

Total current liabilities

 

 

161,512

 

 

 

158,580

 

Long term liabilities

 

 

 

 

 

 

Development grant

 

 

 180,382

 

 

 

210,870

 

Convertible notes

 

 

-

 

 

 

328,020

 

Total long term liabilities

 

 

 

 

 

 

538,890

 

Total Liabilities

 

 

341,894

 

 

 

697,470

 

Commitments (note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, no par value, unlimited authorized, 28,072,366 issued and outstanding (2014 – 13,500,000 issued and outstanding)

 

 

546,948

 

 

 

1

 

Accumulated deficit 

 

 

(878,314 )

 

 

(530,743 )

Accumulated other comprehensive income (loss)

 

 

106,245

 

 

 

(71,238 )

Total stockholders' deficit 

 

 

(225,121 )

 

 

(601,980 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 

 

 

116,774

 

 

 

95,490

 

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-14
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(UNAUDITED)

 

 

 

For the six months ended June 30,

 

 

 

2015

 

 

2014

 

 

 

$

 

 

$

 

Revenue 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Operating Expenses 

 

 

 

 

 

 

 

 

Salaries

 

 

87,035

 

 

 

97,526

 

Rent

 

 

7,108

 

 

 

10,021

 

Professional fees 

 

 

34,051

 

 

 

27,347

 

Insurance

 

 

2,078

 

 

 

2,188

 

Travel 

 

 

567

 

 

 

4,034

 

Software development

 

 

-

 

 

 

79,762

 

General and administrative 

 

 

2,683

 

 

 

5,241

 

Total operating expenses 

 

 

133,522

 

 

 

226,119

 

Operating Loss

 

 

(133,522 )

 

 

(226,119 )
 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest and bank charges, net 

 

 

(320 )

 

 

(202 )

Interest on convertible notes

 

 

-

 

 

 

(24,082 )

Total other income (expense)

 

 

(320 )

 

 

(24,284 )

Loss before taxes

 

 

(133,842 )

 

 

(250,403 )

Less: Refundable taxes

 

 

-

 

 

 

84,044

 

Net loss

 

 

(133,842 )

 

 

(166,359 )

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 Foreign exchange translation adjustment

 

 

9,724

 

 

 

(89,967 )

Total other comprehensive income (loss)

 

 

9,724

 

 

 

(89,967 )

Comprehensive loss

 

 

(124,118 )

 

 

(256,326 )
 

The accompanying notes are an integral part of these financial statements. 

 

 
F-15
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED

JUNE 30, 2015 AND 2014

(UNAUDITED)

 

 

 

2015

 

 

2014

 

 

 

$

 

 

$

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Comprehensive loss 

 

 

(124,118 )

 

 

(256,326 )

Adjustments to reconcile comprehensive loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

Other receivables

 

 

(301 )

 

 

(5,371 )

Prepaid expenses and deposits

 

 

2,391

 

 

 

2,262

 

Accounts payable 

 

 

(464 )

 

 

118,236

 

Advances to related parties 

 

 

10,234

 

 

 

4,311

 

Refundable taxes

 

 

85,348

 

 

 

270

 

Interest accrued on convertible debt

 

 

-

 

 

 

24,082

 

Net cash used in operating activities 

 

 

(26,910 )

 

 

(112,536 )
 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from convertible note

 

 

-

 

 

 

103,014

 

Proceeds from sale of common stock 

 

 

41,630

 

 

 

-

 

Decrease in development grant

 

 

(13,568 )

 

 

(675 )

Net cash provided by financing activities 

 

 

28,062

 

 

 

102,339

 

Net increase (decrease) in cash 

 

 

1,152

 

 

 

(10,197 )

Cash, beginning of year

 

 

596

 

 

 

12,324

 

Cash, end of year 

 

 

1,748

 

 

 

2,127

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow data

 

 

 

 

 

 

 

 

Non-cash financing activity

 

 

 

 

 

 

 

 

Conversion of convertible notes

 

 

483,768

 

 

 

-

 

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-16
 

 

2304101 ONTARIO INC.  

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

STATEMENT OF STOCKHOLDERS’ DEFICIT

(UNAUDITED)

 

 

 

Common stock

 

 

 

 

 

 

    Accumulated Other Comprehensive

  Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Accumulated deficit

 

 

Income (Loss)

 

 

 deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

 

135

 

 

$ 1

 

 

$ (142,753 )

 

$ (899 )

 

$ (143,651 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of 1for 100,000 stock split on May 14, 2015

 

 

13,499,865

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

As restated, December 31, 2012

 

 

13,500,000

 

 

 

1

 

 

 

(142,753 )

 

 

(899 )

 

 

(143,651 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

(221,631 )

 

 

 

 

 

 

(221,631 )

Foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,628

 

 

 

19,628

 

Balance December 31, 2013

 

 

13,500,000

 

 

 

1

 

 

 

(364,384 )

 

 

18,729

 

 

 

(345,654 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for cash

 

 

465,424

 

 

 

21,549

 

 

 

 

 

 

 

 

 

 

 

21,549

 

Net loss

 

 

 

 

 

 

 

 

 

 

(380,088 )

 

 

 

 

 

 

(380,088 )

Foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,792

 

 

 

77,792

 

Balance December 31, 2014

 

 

13,965,424

 

 

 

21,550

 

 

 

(744,472 )

 

 

96,521

 

 

 

(626,401 )
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for cash

 

 

930,848

 

 

 

41,630

 

 

 

 

 

 

 

 

 

 

 

41,630

 

Conversion of debenture

 

 

13,176,094

 

 

 

483,768

 

 

 

 

 

 

 

 

 

 

 

483,768

 

Net loss

 

 

 

 

 

 

 

 

 

 

(133,842 )

 

 

 

 

 

 

(133,842 )

Foreign exchange translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,724

 

 

 

9,724

 

Balance June 30, 2015

 

 

28,072,366

 

 

$ 546,948

 

 

$ (878,314 )

 

$ 106,245

 

 

$ (225,121 )

 

The accompanying notes are an integral part of these financial statements. 

 

 
F-17
 

 

2304101 ONTARIO INC.

O/A BEHAVIOURAL NEUROLOGICAL APPLICATIONS AND SOLUTIONS

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A. Organization and General Description of Business

 

Behavioural Neurological Applications and Solutions (“We” or “the Company”), was incorporated under the laws of the Province of Ontario on October 31 2011.

 

The Company is a cognitive software development company with a primary focus on the development of software based assessment and remediation software for children used in the professional assessment and treatment of cognitive disabilities. The Company entered into a collaboration with Toronto’s Hospital for Sick Children [“SickKids”] to identify the clinical needs, design and processes required to create clinical grade toolsets. In addition to specific applications, the Company has developed a content delivery and patient data platform that enables both its own and third party content to be deployed, monitored, analyzed and accessed remotely by clinicians and patients .

 

B. Basis of Presentation

 

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is December 31.

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2014, our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

Revenue Recognition

 

The following criteria must be met in determining whether revenue may be recorded: (1) persuasive evidence of a contract exists; (2) software has been delivered and/or services have been provided; (3) the price is fixed or determinable; and (4) collection is reasonably assured.

 

Revenue is recorded as the software is delivered and/or services are provided based on the relative fair value of each element. Unbilled receivables are created when services are performed or software is delivered and revenue is recognized in advance of billings. Deferred revenue is created when billing occurs in advance of performing services or when all revenue recognition criteria have not been met.

 

We generate revenue from the following sources: (1) Software revenue, (2) Software as a Service [“SaaS”], and (3) Services revenue.

 

Software Revenue : Our Software revenue is comprised of traditional software license fees, maintenance and support fees, and fees from the resale of third-party software licenses. These software license fees include term licenses, perpetual licenses and rental fees. Maintenance and support are generally offered under annual or multi-year terms and are billed either monthly or annually in advance. Our maintenance and support provides customers with periodic technology updates and interactive support related to our software. Maintenance and support revenue is recognized ratably over the stated term.

 

Services Revenue : Our services offerings help customers to install, optimize and integrate the Company’s software into their computing environment. For fixed-fee professional services contracts, revenue is recorded based upon proportional performance, measured by the actual number of hours incurred divided by the total estimated number of hours for the project. Changes in the estimated costs or hours to complete the contract, and losses, if any, are reflected in the period during which the change or loss becomes known. The Company also provides professional services on a time and materials basis, recognized monthly based upon hours incurred to date. In all cases, contract milestones, project risk profile and refund provisions are taken into consideration.

 

 
F-18
 

 

Foreign Currency Translation

 

The functional currency of each of the Company’s foreign operations is generally the local currency of the country in which the operation is located. All assets and liabilities are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expenses are translated using average exchange rates during the period. Increases and decreases in net assets resulting from currency translation are reflected in stockholders’ deficit as a component of accumulated other comprehensive income (loss).

 

Software Products and Research and Development

 

Software development costs are expensed as incurred and consist primarily of design and development costs of new products, and significant enhancements to existing products incurred before the establishment of technological feasibility. Costs incurred subsequent to technological feasibility of new and enhanced products, costs incurred to purchase or to create and implement internal-use software, and software obtained through business acquisitions are capitalized. Such costs are amortized over the estimated useful lives of the related products, using the straight-line method.

 

Income Taxes

 

Income tax expense is based on income before income taxes, and is accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded when it is not more likely than not that a deferred tax asset will not be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. Considerable judgment is required in assessing and estimating these amounts and the difference between the actual outcome of these future tax consequences and the estimates made could have a material impact on the operating results. To the extent that new information becomes available which causes the Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact income tax expense in the period in which such determination is made. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.

 

The Company makes claims for Scientific Research and Experimental Development (“SRED”) expenditures which are included in refundable taxes receivable. Judgment is required in the determination of qualifying expenses. The final determination of qualifying expenses is not known until acceptance by tax authorities. The Company's SRED credits are recorded on the balance sheet after review of the relevant accounting pronouncements and recorded as refundable taxes receivable once acceptance by tax authorities has occurred.

 

Cost of Sales and Direct Operating Expenses

 

Cost of sales and direct operating expenses represents the cost of providing the Company’s software and services offerings to customers and excludes depreciation, amortization and the cost of maintenance.

 

Recent Pronouncements

 

During the periods June 30, 2015 and 2014, and through September 17, 2015 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

 
F-19
 

 

C. Risks and Uncertainties

 

Business Risk

 

The Company is in its early stages and relies on third-party contractors for the research and development activities related to its products. Should the agreements with the Company’s contractors terminate, the Company may experience disruption in is research and development activities until such time replacements can be contracted or hired.

 

Foreign Currency Risk

 

The Company is exposed to fluctuations in the exchange rate between the United States dollar and the Canadian dollar. The Company’s continued financing activities are primarily in United States dollars while the Company’s expenditures are primarily in Canadian dollars. Should the exchange rate between the Canadian dollar and the United States dollar fluctuate, the Company may be exposed to resource constraints.

 

2. GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported an accumulated deficit of $878,314 and had a comprehensive loss of $124,118 for the six months ended June 30, 2015.

 

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. At December 31, 2014, the Company had insufficient operating revenues and cash flow to meet its financial obligations. There can be no assurance that management will be successful in implementing its plans. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company raised $325,000 through a private placement for convertible notes subsequent to the end of the period (see note 10). As a result of this funding, the Company is expected to have sufficient cash flows to operate for at least the next 12 months. See subsequent events note. Notwithstanding, we anticipate that we will have to raise additional capital to fund research and development and operations over the next 12 months. To the extent that we are required to raise additional funds and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, other than those described in the subsequent events note, no guaranties that any other such financings would be forthcoming, or as to the terms of any such financings. Any future financing may involve substantial dilution to existing investors.

 

3. FAIR VALUE MEASUREMENTS AND DISCLOSURES

 

ASC Topic 820,  Fair Value Measurement , establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Refundable taxes, accounts payable, development grant and convertible notes are all stated at the book value due to the term and nature of such items.

 

4. RELATED PARTY TRANSACTIONS

 

At June 30, 2015, a total of $1,464 (June 30, 2014: $4,311) in advances was due to Scott Woodrow, the Chief Executive Officer of the Company. The loan amounts due are non-interest bearing, unsecured and have no specified terms of repayment.

 

The company paid salaries to Scott Woodrow, the Chief Executive Officer and Director of the company $87,035 for the six month period ended June 30, 2015 ($97,526 for the six month period ended June 30, 2014).

 

See Note 6-Stock Based Compensation for details of stock issuances to director and officers for services rendered.

 

 
F-20
 

 

5. CONVERTIBLE NOTES

 

On May 14, 2015, convertible notes with an aggregate principal and related accrued interest value of $483,768 were converted to 13,176,094 shares of common stock of the Company.

 

6. STOCK BASED COMPENSATION

 

Under the terms of the Company’s consulting agreement with Dr. Russell Schachar, Dr. Schachar received a grant of stock options to purchase up to 2,300,000 shares of the Company’s common stock in accordance with the following vesting schedule:

 

a.

1,300,000 of the Option Shares shall vest on June 1, 2014

b.

600,000 of the Option Shares shall vest on June 1, 2015

c.

400,000 of the Option Shares shall vest on June 1, 2016.

 

The options allow for the purchase of common shares at an exercise price of equivalent to 50% of the market value of the common stock at the date of exercise. The options expire on June 1, 2024.

 

Under the terms of the Company’s consulting agreement with Neil Closner, Mr. Closner received a grant of stock options to purchase up to 2,700,000 shares of the Company’s common stock. The options granted were fully vested as of the grant date of June 1, 2013. The options allow for the purchase of common shares at an exercise price of CDN$0.00001and expire 10 years from the issuance date.

 

Under the terms of the Company’s compensation agreement with Mr. Scott Woodrow, Mr. Woodrow received a grant of stock options to purchase up to 3,200,000 shares of the Company’s common stock. The options granted were fully vested as of the grant date of December 31, 2013. The options allow for the purchase of common shares at an exercise price of CDN$0.00001 and expire 10 years from the issuance date. Mr. Woodrow is the CEO and Director of the Company.

 

Summary Stock Compensation Table

 

The following table sets forth the Company’s paid or accrued stock compensation expense to its officers, directors, employees and contractors.

 

 

 

Stock Awards

 

 

Stock Options Awards

 

 

Non-Vested Stock Awards

 

 

Securities Underlying Non-Vested Stock

 

 

Total

 

Year ended December 31, 2013

 

$ -

 

 

$ -

 

 

$ -

 

 

 

-

 

 

$ -

 

Year ended December 31, 2014

 

$ -

 

 

$ -

 

 

$ -

 

 

 

5,500,000

 

 

$ -

 

Period ended June 30, 2015

 

$ -

 

 

$ -

 

 

$ -

 

 

 

5,500,000

 

 

$ -

 

 

 
F-21
 

 

A Summary of the status of the Company’s option grants as of June 30, 2015 and the changes during the periods then ended is presented below:

 

 

 

Shares

 

 

Weighted-Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

(in Years)

 

 

Aggregate Intrinsic Value

 

Outstanding December 31, 2012

 

 

2,300,000

 

 

$ 0

 

 

 

7.5

 

 

$ -

 

Granted

 

 

5,900,000

 

 

 

 

 

 

 

 

 

 

 

-

 

Exercised

 

 

-

 

 

 

0

 

 

 

8.5

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding December 31, 2013

 

 

8,200,000

 

 

$ 0

 

 

 

8.5

 

 

 

-

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding December 31, 2014

 

 

8,200,000

 

 

$ -

 

 

 

8.5

 

 

$ -

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding June 30, 2015

 

 

8,200,000

 

 

$ -

 

 

 

8.0

 

 

$ -

 

 

The weighted average fair value at the grant date for options during the years ended June 30, 2015 and 2014 was estimated using the Black-Scholes option valuation model with the following inputs:

 

Average expected life in years

 

 

10

 

Average risk-free interest rate

 

 

2.00 %

Average volatility

 

 

100 %

Dividend yield

 

 

0 %

  

Risk-free interest rates for the options were taken from the Daily Federal Yield Curve Rates on the grant dates for the expected life of the options as published by the Federal Reserve. The expected volatility was based on historical data and other relevant factors such as capital structure and the nature of the Company as a development stage company.

 

In calculating the expected life of stock options, the Company determines the amount of time from grant date to contractual term date for vested options. In developing the expected life assumption, all amounts of time are weighted by the number of underlying options.

 

 
F-22
 

 

A summary of the status of the Company’ vested and non-vested option grants at June 30, 2015 and the weighted average grant date fair value is presented below:

 

 

 

Shares

 

 

Weighted Average Grant Date

Fair Value per Share

 

 

Weighted Average Grant Date

Fair Value

 

Vested

 

 

7,200,000

 

 

$ 0.00

 

 

$ 0

 

Non-vested

 

 

1,000,000

 

 

 

0.00

 

 

$ 0

 

Total

 

 

8,200,000

 

 

$ 0.00

 

 

$ 0

 

 

7. DEVELOPMENT GRANT

 

On June 7, 2012, the Company entered into a project funding agreement with the Canada-Israel Research and Development Foundation (“CIIRDF”). The purpose of the grant was to fund the Company’s activities related to the development of a cognitive assessment and treatment platform for childhood attention deficit disorder and attention hyperactivity disorder (the “Development”). Under the terms of the grant, CIIRDF would fund up to CDN$300,000 of development activities related to the Development. The grant is repayable to CIIRDF based on 2.5% of annual gross sales related to products developed from the Development. The Company received CDN$225,000 from CIIRDF to fund the Development.

 

8. INCOME TAXES

 

The Company computes income taxes using the asset and liability approach. The Company currently has no issue that creates timing differences that would mandate a deferred tax expense. Due to the uncertainty as to the utilization of net operating loss carryforwards, a valuation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income has been recorded for the period ended June 30, 2015 and June 30, 2014 due to the Company’s net operating loss carryforward from prior years.

 

The Company is entitled to refundable SRED tax credits for qualifying research and development activities performed in Canada. The Company recognizes the benefit of its SRED tax credits when there is reasonable assurance that they will be realized. During the year ended December 31, 2014, the Company claimed $132,073 (2013 - $84,312) of SRED tax. Subsequent to year end, the Company received SRED tax credits for $132,073 and $84,312. Consequently, the Company has recorded the related SRED tax credits in the year in which the underlying expenditures occurred.

 

The Company’s expected income tax rate for 2015 is 15.5% (2014 - 15.5%). The Company has net operating losses totaling CDN$428,042 (2013 - $CDN$241,351) that can be carried forward over 20 years.

 

Deferred Income Taxes

 

Deferred income taxes primarily represent the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of the Company’s deferred taxes calculated at the interim period are as follows:

 

 

 

2015

 

 

2014

 

Deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

Net operating loss carryforward

 

$ 87,091

 

 

$ 63,195

 

Total deferred tax assets

 

 

87,091

 

 

 

63,195

 

Valuation Allowance

 

 

(87,091 )

 

 

(63,195 )

Net Deferred tax assets

 

$ -

 

 

$ -

 

 

 
F-23
 

 

9. COMMITMENTS

 

On December 8, 2011 the Company entered into a Collaboration Agreement between The Hospital for Sick Children (“SickKids”) and the Ontario Brain Institute (“OBI”). Under the terms of the Collaboration Agreement, the OBI agreed to fund SickKids activities related to the development of a software based treatment program for Attention Deficit and Hyperactivity Disorder in children (the “Project”). Funding of SickKids by the OBI was based on a Project budget of CDN$491,204 in which the Company was to contribute at least the same financial commitments for its own activities under the Project. During the Project period from December 8, 2011 to March 31, 2014, the Company contributed approximately CDN$540,000 consisting of CDN$437,400 of salaries and consulting fees, CDN$50,000 of software development and CDN$53,000 of equipment, supplies and overhead. Under the terms of the Collaboration Agreement, Project activities were to be substantially completed by March 31, 2014. Under the terms of the Collaboration Agreement, the Company is obligated to pay SickKids a minimum royalty on Project intellectual property of the amount of the Development Grant CDN$491,204. Under the terms of the royalty agreement between the Company and SickKids, such payments are to be made based on 5% of net revenue for the first CDN$15,000,000 of related Project product and 2.5% of net revenue thereafter.

 

10. SUBSEQUENT EVENTS

 

On July 7, 2015, the Company closed a financing transaction and received total proceeds of $325,000 for the sale of convertible notes and warrants. Under the terms of the financing, the secured notes will convert to common stock at a conversion price of $0.0409 per share. 794,621 shares were reserved for Purchase Warrants issued under the financing at an exercise price of $0.0818 per share.

 

 

F-24


 

EXHIBIT 3.1

 

 

 
 
 

 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 


EXHIBIT 3.2

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 


 

EXHIBIT 3.3

 

 

 
 
 

 

 


EXHIBIT 3.4

 

 

 
 
 

 

 

 


  EXHIBIT 3.5

 

BY-LAW N0.1

 

A by-law relating generally to the conduct of the business and affairs of

 

2304101 ONTARIO INC.

 

(herein called the "Corporation")

 

CONTENTS

 

1.

Interpretation

8.

Shares

2.

General

9.

Dividends

3.

Directors

10.

Financial Year

4.

Meetings of Directors

11.

Notices

5.

Remuneration and Indemnification

12.

Corporate Records

6.

Officers

13.

Effective Date

7.

Meetings of Shareholders

 

BE IT ENACTED as a by-law of the Corporation as follows:

 

1. INTERPRETATION

 

 


1.01

(1) In this by-law and all other by-laws and resolutions of the Corporation, unless the context otherwise requires:

 

(a) "Act" means the Business Corporations Act (Ontario) together with the Regulations made pursuant thereto and any statute or regulations that may be substituted therefor, as amended from time to time;

 

(b) "articles" means the articles of incorporation of the Corporation as amended or restated from time to time;

 

(c) "board" means the board of directors of the Corporation;

 

(d) "by-laws" means this by-law and all other by-laws of the Corporation as amended from time to time, and from time to time in force and effect;

 

(e) "Corporation" means this Corporation;

 

 
- 1 -
 

 

(f) "meeting of shareholders" means any meeting of shareholders, whether annual or special; and "special meeting of shareholders" means a special meeting of all shareholders entitled to vote at an annual meeting of shareholders and a meeting of any class or classes of shareholders entitled to vote on the question at issue;

 

(g) "person" includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, and a natural person in his capacity as trustee, executor, administrator, or other legal representative;

 

(h) "recorded address" means, in the case of a shareholder, his address as recorded in the shareholders' register; and, in the case of joint shareholders, the address appearing in the shareholders' register in respect of such joint holding or the first address so appearing if there are more than one; and, in the case of a director, officer, auditor or member of a committee of the board, his latest address recorded in the records of the Corporation; and

 

(i) "unanimous shareholder agreement" shall have the meaning ascribed to such term under the Act.

 

(2) Subject to the foregoing, the words and expressions herein contained shall have the same meaning as corresponding words and expressions in the Act.

 

1.02

Interpretation - In this by-law where the context requires, words importing the singular include the plural and vice versa and words importing gender include the masculine, feminine and neuter genders.

 
1.03

Save as aforesaid, all the words and terms appearing in this by-law shall have the same definitions and application as in the Act.

 

2. GENERAL

 

2.01

Registered Office - The Corporation may by resolution of the directors change the location of its registered office within the municipality or geographic township specified in the Articles.

 
2.02

Corporate Seal - The Corporation may have a corporate seal, which shall be adopted and may be changed by resolution of the directors.

 

 
- 2 -
 

 

2.03

Execution of Documents

 

(1) Instruments in writing requiring execution by the Corporation may be signed on behalf of the Corporation by (i) any two officers of the Corporation, or (ii) by any two directors of the Corporation, or (iii) if there exists at any time only one director of the Corporation, then by the director of the Corporation, alone, and all instruments in writing so signed shall be binding upon the Corporation without any further authorization or formality. Notwithstanding the foregoing, the board may from time to time by resolution appoint any officer or officers or any other person or persons on behalf of the Corporation either to sign instruments in writing generally or to sign specific instruments in writing.

 

(2) The corporate seal of the Corporation (if any) may be affixed to instruments in writing signed as aforesaid by any person authorized to sign the same or at the direction of any such person.

 

(3) The term "instruments in writing" as used herein shall include deeds, contracts, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immovable or movable, agreements, releases, receipts and discharges for the payment of money or other obligations, cheques, promissory notes, drafts, acceptances, bills of exchange and orders for the payment of money, conveyances, transfers and assignment of shares, instruments of proxy, powers of attorney, stocks, bonds, debentures or other securities or any paper writings.

 

(4) Subject to the provisions of Section 2.04, the signature or signatures of an officer or director, person or persons appointed as aforesaid by resolution of the directors, may, if specifically authorized by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced upon all instruments in writing executed or issued by or on behalf of the Corporation and all instruments in writing on which the signature or signatures of any of the foregoing officers, directors or persons shall be so reproduced, by authorization of a resolution of the directors, shall be deemed to have been manually signed by such officers or persons whose signature or signatures is or are so reproduced and shall be as valid as if they had been signed manually and notwithstanding that the officers, directors or persons whose signature or signatures is or are so reproduced may have ceased to hold office at the date of delivery or issue of such instruments in writing.

 

 
- 3 -
 

   

2.04

Resolutions in Writing

 

(1) A resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or a committee of directors, is as valid as if it had been passed at a meeting of directors or such committee of directors.

 

(2) Subject to the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders.

 

(3) Where the corporation has only one shareholder, or only one holder of any class of shares, the shareholder present in person or by proxy constitutes a meeting.

 

3. DIRECTORS

 

3.01 Powers - Subject to any unanimous shareholder agreement, the business and affairs of the Corporation shall be managed or supervised by a board of directors. Until changed in accordance with the Act, the board shall consist of not fewer than the minimum number and not more than the maximum number of directors provided for in the articles.

 

3.02 Resident Canadians - Except where the Corporation is a non-resident Corporation, at least twenty-five per cent of the directors of the Corporation must be resident Canadians. However, if the Corporation has less than four directors, at least one director must be a resident Canadian.

 

 
- 4 -
 

 

3.03 Qualifications - No person shall be qualified for election as a director if he is less than 18 years of age; if he is of unsound mind and has been so found by a court in Canada or elsewhere; if he is not an individual; or if he has the status of a bankrupt.

 

3.04 Election and Term - The election of directors shall take place at the first meeting of shareholders and at each succeeding annual meeting at which an election of directors is required. The directors shall hold office for an expressly stated term, which shall expire not later than the close of the third annual meeting of shareholders following the election. A director not elected for an expressly stated term ceases to hold office at the close of the first annual meeting of shareholders following his election. Incumbent directors, if qualified, shall be eligible for re-election. If an election of directors is not held at the proper time, the incumbent directors shall continue in office until their successors are elected.

 

3.05 Resignation - A director who is not named in the articles may resign from office upon giving a written resignation to the Corporation and such resignation becomes effective when received by the Corporation or at the time specified in the resignation, whichever is later. A director named in the articles shall not be permitted to resign his office unless at the time the resignation is to become effective a successor is elected or appointed.

 

3.06 Removal - Subject to the provisions of the Act, the shareholders may, by ordinary resolution passed at a meeting of shareholders, remove any director or directors from office before the expiration of his or their respective terms and may, by a majority of the votes cast at the meeting, elect any person in his place for the remainder of his term.

 

3.07 Vacation of Office - A director ceases to hold office when he dies, resigns, is removed from office by the shareholders, or becomes disqualified to serve as a director.

 

 
- 5 -
 

 

3.08 Vacancies - Subject to the provisions of the Act, where a vacancy occurs on the board, a quorum of the directors then in office may appoint a person to fill the vacancy for the remainder of the term. If there is not a quorum of directors or if there has been a failure to elect the number of directors required by the articles or in the case of a variable board as required by special resolution, the directors then in office shall forthwith call a special meeting of shareholders to fill the vacancy and, if they fail to call a meeting or if there are no directors then in office, the meeting may be called by any shareholder.

 

4. MEETINGS OF DIRECTORS

 

4.01 Place of Meetings - Meetings of the board may be held at any place within or outside Ontario and it shall not be necessary that, in any financial year of the Corporation, a majority of the meetings of the board be held at a place within Canada.

 

4.02 Meetings by Telephone - Where all the directors present at or participating in the meeting have consented thereto, any director may participate in a meeting of the board or of a committee of the board by means of conference telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and a director participating in such a meeting by such means is deemed for the purposes of the Act and these by-laws to be present at the meeting. If a majority of the directors participating in such a meeting are then in Canada, the meeting shall be deemed to have been held in Canada.

 

4.03 Calling of Meetings - Meetings of the board shall be held from time to time at such place, at such time and on such day as the president or a vice-president who is a director or any two directors may determine, and the secretary shall call meetings when directed or authorized by the president or by a vice-president who is a director or by any two directors. Notice of every meeting so called shall be given to each director not less than 48 hours (excluding any part of a Sunday and of a holiday as defined by the Interpretation Act (Ontario)) before the time when the meeting is to be held, except that no notice of meeting shall be necessary if all the directors are present or if those absent have waived notice of or otherwise signified their consent to the holding of such meeting. A notice of a meeting of directors need not specify the purpose of or the business to be transacted at the meeting except where the Act requires such purpose or business to be specified.

 

 
- 6 -
 

 

4.04 Regular Meetings - The board may appoint a day or days in any month or months for regular meetings at a place and hour to be named. A copy of any resolution of the board fixing the place and time of regular meetings of the board shall be sent to each director forthwith after being passed, but no other notice shall be required for any such regular meetings except where the Act requires the purpose thereof or the business to be transacted thereat to be specified.

 

4.05 First Meeting of New Board - Each newly elected board may without notice hold its first meeting immediately following a meeting of shareholders at which such board is elected, provided that a quorum of directors is present.

 

4.06 Quorum - Where the Corporation has anywhere from one to three directors, all directors must be present at any meeting of directors to constitute a quorum. Subject to the articles or by-laws of the Corporation, where the Corporation has more than three directors, a majority of the number of directors constitutes a quorum at any meeting of directors.

 

4.07 Resident Canadians - Directors shall not transact business at a meeting of the board unless at least twenty-five percent of the directors present are resident Canadians or, where the Corporation has fewer than four directors, at least one of the directors present is a resident Canadian. However, directors may transact business at a meeting of the board without the aforesaid requirement for resident Canadian directors to be present if

 

(a)

a resident Canadian director who is unable to be present approves in writing or by telephone or other communications facilities the business transacted at the meeting; and

(b)

the required number of resident Canadian directors would have been present had the director been present at the meeting.

 

4.08 Chairman - The chairman of any meeting of the board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is present at the meeting:

 

(a)

Chairman of the Board;

 

 
- 7 -
 

 

(b)

President; or

(c)

a Vice-President.

 

If no such officer is present, the directors present shall choose one of their number to be chairman.

 

4.09 Votes to Govern - At all meetings of the board, every question shall be decided by a majority of the votes cast on the question.

 

4.10 Casting Vote - In the case of an equality of votes on any question at a meeting of the board, the chairman of the meeting shall not be entitled to a second or casting vote.

 

4.11 Disclosure of Interests in Contracts - Every director or officer of the Corporation who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, or is a director or officer of or has a material interest in any person who is a party to a material contract or transaction or proposed material contract or transaction with the Corporation, shall disclose in writing to the Corporation or request to have entered in the minutes of the meeting of directors the nature and extent of his interest at the time and in the manner required by the Act. Any such contract or proposed contract shall be referred to the board or shareholders for approval even if such contract is one that in the ordinary course of the Corporation's business would not require approval by the board or the shareholders, and a director interested in a contract so referred to the board shall not vote on any resolution to approve the same except as provided by the Act.

 

4.12 Resolution in Lieu of Meeting - A resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors or committee of directors, is as valid as if it had been passed at a meeting of directors or committee of directors. A copy of every such resolution shall be kept with the minutes of the proceedings of the directors or committee of directors.

 

4.13 Delegation - Directors may appoint from their number a managing director who is a resident Canadian or a committee of directors and delegate to such managing director or committee any of the powers of the directors. If the directors appoint a committee of directors, a majority of the members of the committee must be resident Canadians. Unless otherwise determined by the board and subject to the Act, each committee shall have the power to fix its quorum at not less than a majority of its members, to elect its chairman and to regulate its procedure.

 

 
- 8 -
 

 

5. REMUNERATION AND INDEMNIFICATION

 

5.01 Remuneration - Subject to the provisions of the Act, the articles, and the by-laws of the Corporation or any unanimous shareholder agreement, the board may fix the remuneration of the directors. Nothing contained herein shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor. In addition, directors shall be paid such sums in respect of their out-of-pocket expenses incurred in attending board, committee or shareholders' meetings or otherwise in respect of the performance by them of their duties as the board may from time to time determine.

 

5.02 Limitation of Liability Every director and officer of the Corporation, in exercising his powers and discharging his duties, shall act honestly and in good faith with a view to the best interests of the Corporation, and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Subject to the foregoing, no director or officer shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired for or on behalf of the Corporation, or for the insufficiency or deficiency of any security in or upon which any of the monies of the Corporation shall be invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any of the monies, securities or effects of the Corporation shall be deposited, or for any loss occasioned by any error of judgment or oversight on his part, or for any other loss, damage or misfortune whatever, which shall happen in the execution of the duties of his office or in relation thereto, unless the same are occasioned by his own willful neglect or default; provided that nothing herein shall relieve any director or officer from the duty to act in accordance with the Act or from liability for any breach thereof

 

 
- 9 -
 

 

5.03 Indemnity of Directors and Officers - Subject to the provisions of the Act, the Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of such Corporation or body corporate if

 

(a)

he acted honestly and in good faith with a view to the best interests of the Corporation; and

(b)

in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful.

 

5.04 Insurance - Subject to the limitations contained in the Act, the Corporation may purchase and maintain such insurance for the benefit of its directors and officers as such, as the board may from time to time determine.

 

6. OFFICERS

 

6.01 Appointment - Subject to the provisions of the Act, the articles or any unanimous shareholder agreement, the board may from time to time appoint a president, one or more vice-presidents (to which title may be added words indicating seniority or function), a secretary, a treasurer and such other officers as the board may determine, including one or more assistants to any of the officers so appointed. The board may specify the duties of and, in accordance with this by-law and subject to the provisions of the Act, delegate to such officers powers to manage the business and affairs of the Corporation. Save for the chairman of the board and the managing director, an officer may but need not be a director and one person may hold more than one office.

 

 
- 10 -
 

 

6.02 Term, Remuneration and Removal - The terms of employment and remuneration of all officers elected or appointed by the board (including the president) shall be determined from time to time by resolution of the board. The fact that any officer or employee is a director or shareholder of the Corporation shall not disqualify him from receiving such remuneration as may be determined. All officers, in the absence of agreement to the contrary, shall be subject to removal by resolution of the board at any time with or without cause.

 

6.03 Chairman of the Board - The board may from time to time also appoint a chairman of the board who shall be a director. If appointed, the board may assign to him any of the powers and duties that are by any provisions of this by-law capable of being assigned to the president; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the chairman of the board, his duties shall be performed and his powers exercised by the president.

 

6.04 Managing Director - The board may from time to time appoint a managing director who shall be a resident Canadian and a director. If appointed, he shall be the chief executive officer and, subject to the authority of the board, shall have general supervision of the business and affairs of the Corporation; and he shall, subject to the provisions of the Act, have such other powers and duties as the board may specify. During the absence or disability of the president, or if no president has been appointed, the managing director shall also have the powers and duties of that office.

 

6.05 President - The board may from time to time appoint a president. The president shall be the chief operating officer of the Corporation and, if no managing director has been appointed, and subject to the authority of the board, shall have the general supervision of the business and affairs of the Corporation and he shall have such other powers and duties as the board may specify. During the absence or disability of the managing director, or if no managing director has been appointed, the president shall also have the powers and the duties of that office.

 

 
- 11 -
 

 

6.06 Vice-President - The board may from time to time appoint one or more vice-presidents. A vice-president so appointed shall have such powers and such duties as the board or the chief executive officer may prescribe.

 

6.07 Secretary - The board may from time to time appoint a secretary. The secretary shall attend all meetings of the directors, shareholders and committees of the board and shall enter or cause to be entered in books kept for that purpose, minutes of all proceedings at such meetings; he shall give, or cause to be given, when instructed, notices required to be given to shareholders, directors, auditors and members of committees; he shall be the custodian of the stamp or mechanical device generally used for affixing the corporate seal of the Corporation and of all books, papers, records, documents and other instruments belonging to the Corporation; and he shall perform such other duties as may from time to time be prescribed by the board.

 

6.08 Treasurer - The board may from time to time appoint a treasurer. The treasurer shall keep, or cause to be kept, proper accounting records as required by the Act; he shall deposit, or cause to be deposited, all monies received by the Corporation in the Corporation's bank account; he shall, under the direction of the board, supervise the safekeeping of securities and the disbursement of the funds of the Corporation; he shall render to the board, whenever required, an account of all his transactions as treasurer and of the financial position of the Corporation; and he shall perform such other duties as may from time to time be prescribed by the board.

 

6.09 Other Officers - The duties of all other officers of the Corporation shall be such as the terms of their engagement call for or the board requires of them. Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by such assistant, unless the board otherwise directs.

 

6.10 Variation of Duties - From time to time and subject to the provisions of the Act, the board may vary, add to or limit the powers and duties of any officer.

 

 
- 12 -
 

 

6.11 Agents and Attorneys - The board shall have power from time to time to appoint agents or attorneys for the Corporation in or outside of Ontario with such powers of management or otherwise (including the power to sub-delegate) as may be thought fit.

 

6.12 Fidelity Bonds - The board may require such officers, employees and agents of the Corporation, as it deems advisable, to furnish bonds for the faithful performance of their duties, in such form and with such surety as the board may from time to time prescribe.

 

6.13 Conflict of Interest - An officer shall disclose his interest in any material contract or transaction or proposed material contract or transaction with the Corporation in accordance with Section 4.11 herein.

 

7. MEETINGS OF SHAREHOLDERS

 

7.01 Annual Meetings - Subject to Section 7.17 herein, the directors shall call the first annual meeting of shareholders not later than eighteen months after the Corporation comes into existence and, subsequently, not later than fifteen months after holding the last preceding annual meeting. The annual meeting of shareholders of the Corporation shall be held at such time and on such day in each year as the board may from time to time determine, for the purposes of receiving the reports and statements required by the Act to be laid before the annual meeting, electing directors, appointing auditors and fixing or authorizing the board to fix their remuneration, and for the transaction of such other business as may properly be brought before the meeting.

 

7.02 Special Meetings - The board may at any time call a special meeting of shareholders for the transaction of any business which may properly be brought before such meeting of shareholders. All business transacted at an annual meeting of shareholders, except consideration of the financial statements, auditor's report, election of directors and reappointment of the incumbent auditor, is deemed to be special business.

 

 
- 13 -
 

 

7.03 Place of Meetings - Meetings of shareholders shall be held at the registered office of the Corporation, or at such other place within or outside of Ontario as the board from time to time determines.

 

7.04 Notice of Meetings - Notice of the time and place of each meeting of shareholders shall be sent not less than 10 days and not more than 50 days before the date of the meeting to the auditor of the Corporation, to each director, and to each person whose name appears on the records of the Corporation at the close of business on the day next preceding the giving of the notice as a shareholder entitled to vote at the meeting. Notice of a special meeting of shareholders shall state:

 

(a)

the nature of the business to be transacted at the meeting in sufficient detail to permit the shareholders to form a reasoned judgment thereon; and

(b)

the text of any special resolution or by-law to be submitted to the meeting.

 

A shareholder and any other person entitled to attend a meeting of shareholders may in any manner and at any time waive notice of or otherwise consent to a meeting of shareholders.

 

7.05 Persons Entitled To Be Present - The only persons entitled to attend a meeting of shareholders shall be those entitled to vote thereat, the directors and the auditor of the Corporation and others who although not entitled to vote are entitled or required under any provision of the Act or by-laws of the Corporation to be present at the meeting. Any other persons may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting.

 

7.06 Quorum - Subject to the provisions of the Act, the holders of a majority of the shares entitled to vote at a meeting of shareholders present in person or by proxy constitute a quorum for the transaction of business at any meeting of shareholders.

 

7.07 One-Shareholder Meeting - If the Corporation has only one shareholder, or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting.

 

 
- 14 -
 

 

7.08 Right to Vote - At any meeting of shareholders, unless the articles otherwise provide, each share of the Corporation entitles the holder thereof to one vote at a meeting of shareholders, subject to the provisions of the Act.

 

7.09 Joint Shareholders - Where two or more persons hold the same share or shares jointly, any one of such persons present at a meeting of shareholders may in the absence of the other vote the shares but, if two or more of such persons who are present in person or by proxy, vote, they shall vote as one on the shares jointly held by them.

 

7.10 Proxies - Every shareholder entitled to vote at a meeting of shareholders may, by means of a proxy, appoint a proxy holder or one or more alternate proxy holders who are not required to be shareholders to attend and act at the meeting in the manner and to the extent authorized by the proxy and with the authority conferred by the proxy. A proxy shall be in writing and executed by the shareholder or by his attorney authorized in writing and shall conform with the requirements of the Act. The board may by resolution fix a time not exceeding 48 hours, excluding Saturdays and holidays, preceding any meeting or adjourned meeting of shareholders, before which time proxies to be used at that meeting must be deposited with the Corporation or an agent thereof, and any period of time so fixed shall be specified in the notice calling the meeting. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, where no time is specified in such notice, the proxy has been received by the secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting.

 

7.11 Scrutineers - At each meeting of shareholders one or more scrutineers may be appointed by a resolution of the meeting or by the chairman with the consent of the meeting to serve at the meeting. Such scrutineers need not be shareholders of the Corporation.

 

7.12 Chairman - The shareholders may, at the beginning of any meeting of the shareholders, appoint a chairman of such meeting from any shareholder present at that meeting.

 

 
- 15 -
 

 

7.13 Votes to Govern - Subject to the provisions of the Act, the articles and the by-laws of the Corporation or any unanimous shareholder agreement, all questions proposed for the consideration of the shareholders at a meeting shall be decided by a majority of the votes cast thereon. In case of an equality of votes either on a show of hands or on a poll, the chairman of the meeting shall not be entitled to a second or casting vote.

 

7.14 Show of Hands - Subject to the provisions of the Act, at all meetings of shareholders every question shall be decided by a show of hands unless a ballot thereon be required by the chairman or be demanded by a shareholder or proxyholder present and entitled to vote. Upon a show of hands, every person present and entitled to vote has one vote regardless of the number of shares he represents. After a show of hands has been taken upon any question, the chairman may require, or any shareholder or proxyholder present and entitled to vote may demand, a ballot thereon. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon be so required or demanded, a declaration by the chairman that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the question. The result of the vote so taken and declared shall be the decision of the Corporation on the question. A demand for a ballot may be withdrawn at any time prior to the taking of the ballot.

 

7.15 Ballots - If a ballot is required by the chairman of the meeting or is demanded and the demand is not withdrawn, a ballot upon the question shall be taken in such manner as the chairman of the meeting directs.

 

7.16 Adjournment - The chairman of a meeting of shareholders may, with the consent of the meeting and subject to such conditions as the meeting may decide, adjourn the meeting from time to time and from place to place.

 

7.17 Resolution in Lieu of Meeting - Except where a written statement with respect to the subject matter of the resolution is submitted by a director or the auditors in accordance with the Act,

 

(a)

a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders; and

(b)

a resolution in writing dealing with any matter required by the Act to be dealt with at a meeting of shareholders, and signed by all the shareholders entitled to vote at that meeting, satisfies all the requirements of the Act relating to that meeting of shareholders.

 

 
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8. SHARES

 

8.01 Allotment - Subject to the provisions of the Act, the articles and any unanimous shareholder agreement, the board may from time to time allot or grant options to purchase the whole or any part of the authorized and unissued shares of the Corporation at such time and to such persons and for such consideration as the board shall determine, provided that no share shall be issued until it is fully paid as provided by the Act.

 

8.02 Lien for Indebtedness - Subject to the provisions of the Act, the Corporation shall have a lien on shares registered in the name of a shareholder indebted to the Corporation. Such lien may be enforced, subject to any other provision of the articles and to any unanimous shareholder agreement, by the sale of the shares thereby affected or by any other action, suit, remedy or proceeding authorized or permitted by law or by equity and, pending such enforcement, the Corporation may refuse to register a transfer of the whole or any part of such shares.

 

8.03 Share Certificates - Every holder of one or more shares of the Corporation is entitled, at his option, to a share certificate, or to a non-transferable written acknowledgment of his right to obtain a share certificate, stating the number and class or a series of shares held by him as shown on the records of the Corporation. Share certificates and acknowledgments of a shareholder's right to a share certificate shall be in such form as the board shall from time to time approve. Any share certificate shall be signed in accordance with Section 2.03 herein and need not be under the corporate seal.

 

 
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8.04 Replacement of Share Certificates - Subject to the provisions of the Act, the directors may by resolution prescribe, either generally or in a particular case, the conditions upon which a new share certificate may be issued to replace a share certificate which has been defaced, lost, stolen or destroyed.

 

8.05 Transfer Agent and Registrar - The board may from time to time appoint a registrar to maintain the securities register and a transfer agent to maintain the register of transfers and may also appoint one or more branch registrars to maintain branch security registers and one or more branch transfer agents to maintain branch registers of transfers, but one person may be appointed both registrar and transfer agent. The board may at any time terminate any such appointment.

 

8.06 Joint Shareholders - If two or more persons are registered as joint holders of any share, the Corporation shall not be bound to issue more than one certificate in respect thereof, and delivery of such certificate to one of such persons shall be sufficient delivery to all of them. Any one of such persons may give effectual receipts for the certificate issued in respect thereof or for any dividends, bonus, return of capital or other money payable or warrant issuable in respect of such share.

 

9. DIVIDENDS

 

9.01 Declaration - Subject to the provisions of the Act, the articles and to any unanimous shareholder agreement, the board may declare and the Corporation may pay dividends to the shareholders according to their respective rights and interests in the Corporation. Dividends may be paid by issuing fully paid shares of the Corporation or options or rights to acquire fully paid shares of the Corporation or, subject to the provisions of the Act, may be paid in money or property.

 

 
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9.02 Payment - A dividend payable in cash shall be paid by cheque drawn on the Corporation's bankers or one of them to the order of each registered holder of shares of the class in respect of which it has been declared, and mailed by ordinary mail postage prepaid to such registered holder at his recorded address, unless such holder otherwise directs. In the case of joint holders, the cheque shall, unless such joint holders otherwise direct, be made payable to the order of all of such joint holders and mailed to them at their recorded addresses. The mailing of such cheque as aforesaid shall satisfy and discharge all liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is required to and does withhold, unless such cheque be not paid on due presentation.

 

9.03 Non-Receipt of Cheque - In the event of the non-receipt of any cheque for a dividend by the person to whom it is so sent as aforesaid, the Corporation shall issue to such person a replacement cheque for a like amount on such terms as to indemnity, reimbursement of expenses and evidence of non-receipt and of title as the board may from time to time prescribe, whether generally or in a particular case.

 

10. FINANCIAL YEAR

 

10.02 Financial Year - The financial year of the Corporation shall end on the 31st day of December in each year, until changed by a resolution of the board.

 

11. NOTICES

 

11.01 Method of Giving Notice - Any notice, communication or other document required by the Act, the regulations, the articles or the by-laws to be given by the Corporation to a shareholder, director, officer, or auditor or member of a committee of the board of the Corporation under any provision of the Act, the articles or by-laws or otherwise shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary mail or if sent to him at his recorded address by any means of any prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or delivered to the recorded address as aforesaid; a notice so mailed shall be deemed to have been received on the fifth day after mailing; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The secretary may change or cause to be changed the recorded address of any shareholder, director, officer or auditor of the Corporation in accordance with any information believed by him to be reliable. The recorded address of a director shall be his latest address as shown in the records of the Corporation or in the most recent notice filed under the Corporations Information Act (Ontario), whichever is the more current.

 

 
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11.02 Computation of Time - In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, "day" means a clear day and a period of days shall be deemed to commence on the day following the event that began the period and shall be deemed to terminate at midnight of the last day of the period except that if the last day of the period falls on a Sunday or holiday the period shall terminate at midnight of the day next following that is not a Sunday or holiday.

 

11.03 Omissions and Errors - The accidental omission to give any notice to any shareholder, director, officer or auditor, or the non-receipt of any notice by any shareholder, director, officer or auditor or any error in any notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon.

 

11.04 Notice to Joint Shareholders - All notices with respect to any shares registered in more than one name may, if more than one address appears on the records of the Corporation in respect of such joint holding, be given to such joint shareholders at the first address so appearing, and notice so given shall be sufficient notice to all the holders of such shares.

 

11.05 Persons Entitled by Death or Operation of Law - Every person who by operation of law, by transfer or the death of a shareholder or otherwise becomes entitled to shares is bound by every notice in respect of such shares which has been duly given to the registered holder from whom he derives title prior to his name and address being entered on the records of the Corporation (whether such notice was given before or after the happening of the event upon which he become so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act.

 

 
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11.06 Waiver of Notice - Any shareholder (or his duly appointed proxy), director, officer or auditor may waive any notice or abridge the time required for any notice required to be given under any provision of the Act, the articles or by-laws of the Corporation or otherwise, and such waiver or abridgement, whether given before or after the meeting or other event of which notice is required to be given, shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the board or a committee of the board which may be given in any manner.

 

11.07 Signatures to Notices - The signatures to any notice to be given by the Corporation may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed.

 

12. CORPORATE RECORDS AND INFORMATION

 

12.01 Keeping of Corporate Records

 

(1) The Corporation shall prepare and maintain, at its registered office or at such other place in Ontario designated by the directors:

 

 

( a )

the Articles and the by-laws and all amendments thereto, and a copy of any unanimous shareholder agreement known to the directors;

 

(b)

minutes of meetings and resolutions of shareholders;

 

 

 

( c )

a register of directors in which are set out the names and residence addresses, including the street and number, if any, of all persons who are or have been directors with the several dates on which each became or ceased to be a director;

 

 

 

(d)

a securities register in which are recorded the securities issued by the Corporation in registered form, showing with respect to each class or series of securities

 

 
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(i)

the names, alphabetically arranged, of persons who,

 

(A)

are or have been within six years registered as shareholder and the address, including the street and number, if any, of every such person while a holder, and the number and class of shares registered in the name of such holder,

(B)

are or have been within six years registered as holders of debt obligations of the Corporation and the address, including the street and number, if any, of every such person while a holder, and the class or series and principal amount of the debt obligations registered in the name of such holder, and

 

(ii)

the date and particulars of the issue of each security and warrant.

 

(2) In addition to the records described in subsection (1) of this section, the Corporation shall prepare and maintain adequate accounting records and records containing minutes of meetings and resolutions of the directors and any committee. The records described in this subsection shall be kept at the registered head office of the Corporation or at such other place in Ontario as is designated by the directors and shall be open to examination by any director during normal business hours of the Corporation.

 

(3) The Corporation shall also cause to be kept a register of transfers in which all transfers of securities issued by the Corporation in registered form and the date and other particulars of each transfer shall be set out.

 

 
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13. EFFECTIVE DATE

 

13.01 Effective Date - This by-law shall come into force when enacted by the directors, subject to the provisions of the Act.

 

Resolved that the foregoing by-law is hereby enacted by the sole director of the Corporation, pursuant to the Business Corporations Act (Ontario) as evidenced by the signature hereto of the sole director.

 

MADE AS OF the 31st day of October, 2011.

 

 

 

In lieu of confirmation at a general meeting of the shareholders, the undersigned, being the sole shareholder of the Corporation entitled to vote at a meeting of shareholders, hereby confirms in writing the above by-law in accordance with the Business Corporations Act (Ontario).

 

 

 

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EXHIBIT 10.1

 

 

CONVERTIBLE LOAN AGREEMENT
 

This Convertible Loan Agreement (this Agreement ) is made and entered into as of this __ day of _________, 2014 (the Effective Date ) by and among 2304101 Ontario Inc.., operating as Behavioural Neurological Applications and Solutions of 100 College Street, Suite 213, Toronto, ON M5G 1L5 (the Company ), and those persons and entities listed in Exhibit A (each, a Lender , and collectively, the Lenders ). Except as expressly provided in this Agreement, each such Lender's undertakings and obligations hereunder are made separately and independently to the other Lenders' obligations and undertakings set out herein.

 

Whereas , the Company requires for its operations and activities immediate funding, and has agreed with the Lenders, that the Lenders shall provide a convertible loan to the Company in the initial aggregate principal amount of up to $700,000 (Seven Hundred Thousand Dollars pursuant to the terms and conditions set forth herein.

 

Whereas , each Lender desires to provide its portion of such convertible loan or loans to the Company, in the amounts as set forth on Exhibit A hereto, pursuant to the terms and conditions set forth herein;

 

NOW, THEREFORE, the parties agree as follows:

 

1.

Preamble. The Preamble to this Agreement constitutes an integral part hereof.

2.

The Loan.

 

1.1.

The Lenders shall lend to the Company and the Company shall initially borrow from the Lenders an aggregate of$700,000 (Seven Hundred Thousand Dollars) (the " Loan". Each Lender shall lend to the Company that portion of the Loan set forth opposite its name in Exhibit A in the column titled " Loan Amount" (the "Pro Rata Portion"). The Loan Amount for each Lender shall be delivered to the Company on or prior to December 31, 2014 (the "Initial Closing Date") by certified cheque or wire transfers of immediately available funds to an account designated by the Company.

1.3.

The Loan shall bear interest at the rate of 18% (eighteen percent), per annum, from the date of its actual extension to the Company and until its repayment or conversion into securities of the Company, as set forth below;. For the avoidance of doubt, the Interest accruing shall only be repaid upon repayment of the Loan, and shall be taken into account in the event of the conversion of the Loan into securities of the Company.

1.4.

Subject to Section 12.4, the Company shall have the right at any time prior to the conversion of the Loan (as set forth in Section 4), upon ten (10) days prior written notice to the Lender to repay all or any part of the outstanding Loans.

1.5.

CONDITIONS PRECEDENT TO CLOSING. Each Lender’s obligation to extend money to Company pursuant to the Loan Agreement at a Closing is subject to, prior to or at such Closing, the following conditions:

1.2.

Representations and Warranties. The representations and warranties made by the Company in Section 14 shall be true and correct in all respects when made and shall be true and correct in all material respects on the applicable Closing Date with the same force and effect as if they had been made on and as of such Closing.

 

 
1
 

 

1.3.

Performance. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing, except where failure to so perform would not reasonably be expected to have a material adverse effect on the condition, financial or otherwise, or operations of the Company ("Material Adverse Effect").

1.4.

Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to counsel for the Lenders.

 

4.

Use of Proceeds. The Company undertakes that the entire proceeds of each Loan shall be used for general corporate purposes, including working capital, capital expenditures, operating expenditures (including payment to the Lenders of agreed upon expenses relating to the Loan transaction).

5.

Conversion.

 

1.1.

In the event that on or prior to December 31, 2014 (or such later time as may be agreed in writing between all the parties hereto) (the “Maturity Date”), an external round of financing in the Company, in a minimum amount of $500,000 ("Qualified Financing") is completed, then immediately prior to the closing of such Qualified Financing, or concurrently therewith, the Loan shall automatically be converted into an investment in the Company in consideration for the type of securities issued in such Qualified Financing (the "New Round Securities"), having the rights granted to such New Round Securities in the Company's Articles of Association as shall be effect from time to time, and any other shareholder agreements, at a price per share equal to the price per share of the New Round Securities, with a 25% discount.

 

The Lender shall provide written notice to the Company at least 14 days prior to the closing of the Qualified Financing. .

 

6.

Optional Conversion.

 

Prior to the occurrence of a Qualified Financing, or until the Maturity Date, the earlier to occur, the Loan, or any portion thereof which has actually been extended by a Lender, may be converted by such Lender, at any time in its sole and absolute discretion, into Common Shares of the Company, , at a conversion price reflecting a fully diluted pre-money valuation of the Company as of the Closing according the following scheduleas adjusted in accordance with the Company's Articles of Incorporation ( the Base Conversion Rate ).

 

Prior to March 31, 2014:

 

$ 4,000,000

 

From April 1-June 30, 2014:

 

$ 5,000,000

 

From July 1-September 30, 2014:

 

$ 6,000,000

 

From September 30-December 31, 2014:

 

$ 7,000,000

 

 

The number of Common Shares into which Loan may be converted will be determined by dividing the Loan balance to be converted by the Base Conversion Rate, as adjusted. The Lender shall provide written notice to the Company and the other Lenders of such Lender's intention to so convert its pro rata portion of the Loan, or any portion thereof, and each Lender shall have full discretion as to the timing of the conversion of such Lender's Loan, or any portion thereof.

 

 
2
 

 

RESERVATION OF SHARES . Company shall reserve and keep available solely for issuance upon the conversion of the Loan such number of shares of as will be from time-to-time be sufficient to permit the conversion or exercise of all outstanding Loan

 

7.          

 

8.

Rights of the Converted Shares: The Common Shares, or New Round Securities issued to the Lenders upon the conversion of the Loan pursuant to this Agreement shall have the rights granted to such securities as provided in the Company's Articles of Incorporation as shall be effect from time to time, and any other shareholder agreements, as applicable, dependent on the type of securities to which the Loan shall be converted into. Such rights may include liquidation preference, anti-dilution provisions, voting rights, protective provisions, information and registration rights, preemptive rights and other rights, all as shall be agreed upon in the context of the Qualified Financing.

9.

Negative Covenants. So long as any amount of the Loan remains outstanding and without prior written consent Lenders holding the at least a majority of the principal outstand balance of the aggregate Initial Loan and Subsequent Loan (the “Majority Lenders”) Company shall not: (a) materially change the general nature of its business; (b)make any loan or other extension of credit to its distributors, customers, subsidiaries, or employees except for loans or extensions of credit to distributors, customers and subsidiaries granted in the Ordinary Course of Business; (c) receive any loan or advance from a third party or incur any debt, except for debt incurred in the Ordinary Course of Business and loans from existing shareholders or subsidiaries (each such loan shall be referred to as a “Related Party Loan”); (d) issue any guarantee or otherwise undertake any contingent liability other than debt incurred in the Ordinary Course of Business; (e) pledge or grant a security interest in any of Company’s other assets; (f) sell, transfer or assign assets of the Company other than the sale of products in the Ordinary Course of Business; (g) transfer ownership of its fixed assets to a third party; (h) create or permit to exist any encumbrance over all or any of its present or future revenues or assets; and (i) distribute any dividends; and (j) purchase, redeem, retire, or otherwise acquire for value any of the Company’s capital shares now or hereafter outstanding.

 

Ordinary Course of Business shall mean transactions or actions directly related to the business of operations of the Company (in this paragraph each, a Transaction ) consistent with Company s past business practices.

 

The above covenants shall also apply to any Subsidiary. Subsidiary shall mean any existing subsidiary of the Company or any subsidiary to be created by the Company after the date hereof.

 

10.

AFFIRMATIVE COVENANTS.

 

1.1.

CORPORATE ACTIONS. The Company warrants to each Lender that as promptly as practicable after the Closing and within the requirements of applicable law, the Company shall fulfill all corporate actions necessary, but not required prior to the Closing and, for the authorization, execution, delivery, and performance of all of the Company’s obligations under this Agreement and all transactions contemplated herein, and for the authorization, issuance, and allotment of securities pursuant to the terms of this Agreement, including without limitation and filing of all required notices and payment of all fees and taxes, if any.

 

11.

INTERCREDITOR PROVISIONS.

 

1.1.

The Lenders acknowledge and agree that it is their intent, notwithstanding anything to the contrary in this Agreement, that the rights, powers and authorities of the Lenders under this Agreement and the other transaction documents delivered pursuant to this Agreement (the “Transaction Documents”) may be exercised on behalf of all Lenders by the consent, agreement or waiver, as the case may be, of the Majority Lenders. Each Lender hereby agrees that the Majority Lenders shall have the right, power and authority to direct the manner of any and all action taken by the Lenders in respect of: (a) the enforcement of this Agreement and the other Transaction Documents and any remedial action in respect thereof; (b) the granting of waivers or making of amendments in respect of this Agreement and the other Transaction Documents, and (c) the exercise, non-exercise, waiver, release or modification of any other right or remedy or power of the Lenders pursuant to this Agreement and the other Transaction Documents. Any such direction by or approval of the Majority Lenders shall be binding on all Lenders. Notwithstanding anything in this Section, any waiver, release or modification of any right or remedy or power of the Lenders pursuant to this Agreement, and the other Transaction Documents that has the effect of treating one Lender materially differently from another Lender shall also require the consent of the Lender(s) negatively effected by the disparate treatment.

 

 
3
 

 

1.2.

Without limitation to the foregoing, no Lender shall, or if already commenced shall continue in, any of the following actions without the prior approval of the Majority Lenders (provided that if so directed by the Majority Lenders each Lender will):

 

(a)

commence, or cause to be commenced, or join with any creditor in commencing, any bankruptcy, insolvency or receivership proceeding against Company; or

(b)

exercise any demand rights or pursue any remedies under or with respect to the Agreement or any Transaction Document.

 

1.3.

The Company agrees that all payments on account of the Loan shall be made ratably among the Lenders in accordance with their respective Pro Rata Portion at the time of payment, as shall be set forth in Exhibit A (as amended). The Parties agree that they shall not, without the prior written consent of the Majority Lenders and the Company, amend the provisions of this Agreement or any of the Transaction Documents. Payments in respect of the Loan shall be applied in the following order: (a) first to the payment of Interest; (c) second to the payment of principal; and (d) third to the payment of any other obligations of the Company under the Transaction Documents, if any.

1.4.

For the avoidance of doubt, it is hereby clarified that once the Company has made any payments on account of the Loan pursuant to Exhibit A, the Company shall be deemed to have fulfilled its repayments obligations under this Agreement and all Transaction Documents, for all intents and purposes, and the Lenders shall have no claim or demand against the Company in connection therewith.

1.5.

Each Lender acknowledges and agrees that all payments made on the Loan on account of obligations under this Agreement and the Transaction Documents shall be made on a pro rata basis, in accordance with each Lender’s respective Pro Rata Portion at the time of payment as set forth in Exhibit A, as amended. If, despite the provisions of this Section, any Lender shall receive any payment from Company relative to a Loan in excess of the Pro Rata Portion to which it is then entitled in accordance with this Agreement, such Lender shall hold such excess payment in trust for the benefit of the parties entitled thereto and promptly pay over or deliver such excess payment to the other Lenders for application in accordance with this Agreement.

1.6.

To the extent a Lender converts its Loan into Common Shares, such Lender agrees that it shall, upon executing a joinder agreement, in form satisfactory to the Company and delivering such document to the Company, be joined as a party to the Shareholders Agreement. To the extent a Lender converts its Loan into New Round Securities, such Lender agrees that it shall, upon executing the necessary documents required in the framework of such financing (including any joinder agreements, in form satisfactory to the Company) and delivering such documents to the Company, be joined as a party to any shareholder agreement and any registration agreement applicable to holders of Company’s New Round Securities.

 

12.

Default.

 

1.1.

Any outstanding amount under the Loan will immediately become due and payable upon any Event of Default as defined herein. The occurrence of any of the following shall be an Event of Default:

(a)

the Company fails to pay any sum due from it pursuant to this Agreement at the time, in the currency and in the manner specified in this Agreement, or otherwise is in breach of this Agreement or any of the Transaction Documents, and such breach (except for a breach that would have a Material Adverse Effect)is not remedied within twenty-one (21) days after the Majority Lenders have notified the Company in writing of said breach or non-payment.

 

 
4
 

 

(b)

the Company fails duly to perform or comply with any covenant or other obligation expressed to be assumed by it in this Agreement, the Transaction Documents, or any of the exhibits, schedules or annexes hereto and thereto (if capable of remedy) (except for a breach that would have a Material Adverse Effect) and such failure is not remedied within thirty (30) days after the Majority Lenders have given notice thereof to the Company.

(c)

the Company is unable to pay its debts as they fall due, commences negotiations as a result of financial difficulties with one or more of its creditors with a view to the general readjustment or rescheduling or entering into arrangement regarding its indebtedness or makes a general assignment for the benefit of or a composition with its creditors or the Company's liabilities are greater than its assets and the same is not remedied within 30 days of its liabilities becoming greater than its assets.

(d)

the commencement by the Company of any liquidation proceedings or the adoption of a winding up resolution by the Company, or the appointment of a receiver or trustee over the whole or any part of the Company’s assets, or the calling by the Company of a meeting of creditors for the purpose of entering into a scheme or arrangement with them, and if any of the aforementioned actions or proceedings is not canceled within 60 days of its initiation; and

(e)

the levy of an attachment or the institution of execution proceedings against the whole or a substantial part of the Company’s assets, where such attachment or execution proceeding is not discharged within 60 days. The Company (as applicable) shall notify the Lender within 72 hours of any such attachment or proceeding.

 

13.

Representations and Warranties of the company.

 

The Company hereby represents and warrants to the Lenders that, the statements in the following paragraphs of this Section 12 are all true and correct as of the Closing:

 

1.1.

Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing in accordance with the laws of the state of its incorporation and has all requisite corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted.

1.2.

Due Authorization; Consent. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance of all obligations of the Company under this Agreement and the Floating Charge, has been taken or will be taken prior to the Closing. This Agreement constitutes a valid and binding obligation of the Company enforceable in accordance with its terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors’ rights generally and to general equitable principles. All consents, approvals and authorizations of, and registrations, qualifications and filings with, any federal or state governmental agency, authority or body, or any third party, required in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby and thereby have been obtained or will be obtained prior to the Closing.

1.3.

Disclosure. The Company to its knowledge, has fully provided the Lenders with all of the information reasonably available to the Company that the Lenders have requested for deciding whether to provide the Loan to the Company pursuant to the terms and conditions set forth in this Agreement. To the Company's best knowledge, neither this Agreement (including all the exhibits and schedules attached hereto), nor any other statements or certificates made or delivered in connection herewith contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they are made, not misleading.

 

 
5
 

 

14.

Conditions to Closing: the Initial Closing will be conditional upon Company receiving from the Lenders, in the aggregate, at least $75,000.

15.

Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof. This Agreement may not be modified or amended except by a written agreement signed by the parties hereto.

16.

Governing Law. This Agreement shall be governed by the laws of the Province of Ontario, without regard for the conflicts-of-laws provisions thereof. Any dispute arising under or in connection with this Agreement shall be settled exclusively before the courts of the Province of Ontario.

17.

Severability; Headings. The invalidity or unenforceability of any term or provision of this Agreement will not affect the validity or enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and will not alter or otherwise affect the meaning of this Note.

18.

EXPENSES. Each party shall pay all costs and expenses incurred by it in connection with the negotiation, execution, delivery and performance of this Agreement. Notwithstanding the foregoing, the Company shall pay the legal fees of the Lenders in connection with the transactions contemplated by this Agreement and the Transaction Documents not to exceed $5,000 per Lender or $10,000 in the aggregate.

19.

NOTICES. All notices, requests, consents and other communications under this Agreement shall be in writing and shall be delivered by hand, by fax or other electronic delivery, or by express overnight courier service. Notices provided in accordance with this Section shall be deemed delivered upon personal delivery or receipt by fax or electronic delivery or overnight mail or on the date delivery is refused. Any such notice must be sent:

 

(a)

if to a Lender, to that Lender at the address specified for such communications on the signature pages hereto, or at such other address as that Lender shall have specified to the Company in writing,

(b)

if to the Company, at its address specified for such communications on the signature page hereto, or at such other address as the Company shall have specified to the Lender in writing.

 

[The remainder of this page is left intentionally blank]

 

 
6
 

 

[signature page to Convertible Loan Agreement]

 

IN WITNESS WHEREOF, the parties have executed this Convertible Loan Agreement as of the date first above written.

 

Address:

______________________________

2304101 Ontario Inc.

 

______________________________

     

______________________________

By: /s/

 

 

 

Name:

 

 

 

Title:

 

 

Address:

______________________________

 

______________________________      

______________________________

By: /s/

 

 

 

Name:

 

 

 

Title:

 

 

Address:

______________________________

 

______________________________      

______________________________

By: /s/

 

 

 

Name:

 

 

 

Title:

 

 

 
7
 

 

Schedule A

 

List of Lenders, Details, Loan Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


 

EXHIBIT 10.2

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “ Agreement ”) is dated as of July 7, 2015, between 2304101 Ontario Inc. (operating as Behavioural Neurological Applications and Solutions), an Ontario corporation (the “ Company ”), and each purchaser identified on the signature pages hereto (each, including its successors and permitted assigns, a “ Purchaser ” and collectively, the “ Purchasers ”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1  Definitions . In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Articles of Incorporation (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

Acquiring Person ” shall have the meaning ascribed to such term in Section 4.15.

 

Action ” shall have the meaning ascribed to such term in Section 3.1(j).

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

Applicable Law ” means any law, regulation, rule, statute, ordinance and the like promulgated by any governmental authority applicable to the Company and any Subsidiary with respect to any operations, governance, business, actions or any other matter relating to or affecting the Company and any Subsidiary.

 

Board of Directors ” means the board of directors of the Company.

 

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

 

Canadian Counsel ” means Dentons Canada LLP, 77 King Street West, Suite 400, Toronto-Dominion Centre Toronto, ON M5K OA1 Canada, Attn: Andrew Elbaz, Esq., phone: 416-863-4704.

 

Closing ” means the Initial Closing and Subsequent Closing, if any, of the purchase and sale of the Securities pursuant to Section 2.1 or 2.4.

 

 
1
 

 

Closing Date ” means each of the Initial Closing Date and the Subsequent Closing Date, if any, and is the Business Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligation to pay the Subscription Amount at such Closing, and (ii) the Company’s obligations to deliver the Securities to be issued and sold at such Closing, in each case, have been satisfied or waived, but in no event later than the tenth Business Day following the date hereof in the case of the Initial Closing.

 

Commission ” means the United States Securities and Exchange Commission.

 

Common Stock ” means the common shares/stock of the Company, no par value per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Company Counsel ” means David Lubin & Associates, PLLC, 108 S. Franklin Avenue, Suite 10, Valley Stream, NY 11580, Attn: David Lubin, Esq., fax: (516) 887-8250.

 

Company Lockup Agreements ” means the lockup agreement in the form annexed hereto as Exhibit H , to be provided by the Persons identified on Schedule 2.2(a)(vi) .

 

Company Material Contracts ” shall have the meaning ascribed to such term in Section 3.1(hh).

 

Contracts ” means any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases or other binding instruments or binding commitments, whether written or oral.

 

Conversion Price ” shall have the meaning ascribed to such term in the Note.

 

Conversion Shares ” means shares of the Company’s Common Stock issuable upon conversion of the Note and interest in accordance with the terms of the Note.

 

Disclosure Schedules ” means the Disclosure Schedules of the Company delivered concurrently herewith.

 

Effective Date ” means the earliest of the date that (a) the initial Registration Statement has been declared effective by the Commission registering for public resale by the holders thereof, of the Registrable Securities (as defined in the Registration Rights Agreement), or (b) all of the Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company to be in compliance with the current public information requirement under Rule 144 and without volume or manner-of-sale restrictions and Company counsel has delivered to the Transfer Agent of the Registrable Securities a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

 

End Date ” shall have the meaning ascribed to such term in Section 4.9.

 

Equity Line of Credit ” shall have the meaning ascribed to such term in Section 4.9.

 

Escrow Agreement ” means the escrow agreement to be employed in connection with the sale of the Securities, a copy of which is annexed hereto as Exhibit C .

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

 
2
 

 

Exempt Issuance ” means the issuance of (a) shares of Common Stock and options to officers, directors, employees, or consultants of the Company prior to and after the Closing Date in the amounts and on the terms set forth on Schedule 3.1(g) , pursuant to a stock option plan annexed hereto as Exhibit I , (b) securities upon the exercise or exchange of or conversion of Securities issued hereunder (subject to adjustment for forward and reverse stock splits and the like that occur after the date hereof) and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities and any term thereof have not been amended since the date of this Agreement to increase the number of such securities or to decrease the issue price, exercise price, exchange price or conversion price of such securities and which securities and the principal terms thereof are set forth on Schedule 3.1(g) , (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall be intended to provide to the Company substantial additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (d) securities issued or issuable pursuant to this Agreement, the Note or the Warrants, or upon exercise or conversion of any such securities, and (e) on the Initial Closing Date, a Note in the principal amount of CND $50,000 and corresponding Warrants calculated in the manner set forth in Section 2 and on the same terms as the Note and Warrants to be issued to the Purchasers, to be issued to Scott Woodrow in satisfaction of a like amount of debt owed to him by the Company, provided that Scott Woodrow will not participate in the Subsequent Closing, if any, nor be deemed to be a Purchaser for purposes of Section 5.5 hereof nor consent requirements, and further provided that Scott Woodrow is not granted any of the rights and benefits of the Transaction Documents unavailable to a director, insider, control person or Affiliate under Applicable Law.

 

FCPA ” means the Foreign Corrupt Practices Act of 1977, as amended.

 

Financial Statements ” means the financial information annexed hereto as Schedule 3.1(h) .

 

Fully-Diluted Basis ” means the assumption that all options, warrants or other convertible securities or instruments or other rights to acquire Common Stock or any other existing or future classes of capital stock have been exercised or converted, as applicable, in full, regardless of whether any such options, warrants, convertible securities or instruments or other rights are then vested or exercisable or convertible in accordance with their terms.

 

GAAP ” shall mean United States generally accepted accounting principals applied on a consistent basis.

 

Going Public Event ” shall have the meaning ascribed to such term in Section 4.13.

 

Governmental Authority ” means any supranational, national, state, province, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority or self-regulatory organization.

 

Guaranty ” means the form guaranty attached to the Security Agreement.

 

 
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Indebtedness ” shall have the meaning ascribed to such term in Section 3.1(w).

 

Initial Closing ” shall have the meaning ascribed to such term in Section 2.1.

 

Initial Closing Date ” shall mean the date upon which the Initial Closing occurs.

 

Intellectual Property Rights ” shall have the meaning ascribed to such term in Section 3.1(o).

 

Liens ” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Listing Default ” shall have the meaning ascribed to such term in Section 4.3(c).

 

Majority in Interest ” shall have the meaning ascribed to such term in Section 5.5.

 

Material Adverse Effect ” shall have the meaning assigned to such term in Section 3.1(b).

 

Material Permits ” shall have the meaning ascribed to such term in Section 3.1(m).

 

Maximum Amount ” shall have the meaning ascribed to such term in Section 2.1.

 

Maximum Rate ” shall have the meaning ascribed to such term in Section 5.17.

 

Money Laundering Laws ” shall have the meaning ascribed to such term in Section 3.1(aa).

 

Notes ” means the convertible notes, in the form of Exhibit A hereto.

 

OFAC ” shall have the meaning ascribed to such term in Section 3.1(bb).

 

Participation Maximum ” shall have the meaning ascribed to such term in Section 4.19(a).

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Pre-Notice ” shall have the meaning ascribed to such term in Section 4.19(b).

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition, whether commenced or threatened.

 

Pro Rata Amount ” means for each Purchaser a fraction of which the numerator is such Purchaser’s Subscription Amount with respect to the Initial Closing and the denominator of which is the aggregate Initial Closing Subscription Amounts for all Purchasers.

 

Purchaser Counsel ” shall mean Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.

 

Purchaser Party ” shall have the meaning ascribed to such term in Section 4.6.

 

 
4
 

 

Registration Rights Agreement ” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit G attached hereto.

 

Registration Statement ” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Common Stock issuable upon conversion of the Note by each Purchaser as provided for in the Registration Rights Agreement.

 

Regulation D ” means Regulation D under the Securities Act.

 

Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).

 

Required Minimum ” means, as of any date, 150% of the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including but not limited to any Underlying Shares issuable upon conversion in full of the Notes and the interest that could accrue through the maturity date thereof and the Warrant Shares issuable upon exercise of the Warrants, ignoring any conversion or exercise limits set forth therein.

 

Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Securities ” means the Notes, the Warrants, the Underlying Shares and Subsequent Closing Common Stock.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Securities Laws ” means the securities laws of the United States or any state thereof and the securities laws of Canada and its provinces and the rules and regulations promulgated thereunder.

 

Security Agreement ” means the security agreement annexed hereto as Exhibit D , entered into between the Company and Purchasers.

 

Subscription Amount ” means, as to each Purchaser, the aggregate amount to be paid for the Notes and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

Subsequent Closing ” shall have the meaning ascribed to such term in Section 2.4.

 

Subsequent Closing Common Stock ” shall have the meaning ascribed to such term in Section 2.5(a)(ii).

 

Subsequent Closing Escrow Agreement ” means an escrow agreement substantially similar to the Escrow Agreement with respect to the Subsequent Closing.

 

Subsequent Closing Subscription Amount ” means, for each Purchaser an amount equal to each such Purchaser’s Pro Rata Amount of the positive difference between the Maximum Amount and the aggregate Initial Closing Subscription Amount, but at each Purchaser’s election for itself, not in excess of such Purchaser’s Pro Rata Amount of $250,000.

 

Subsequent Financing ” shall have the meaning ascribed to such term in Section 4.19(a).

 

Subsequent Financing Notice ” shall have the meaning ascribed to such term in Section 4.19(b).

 

 
5
 

 

Subsidiary ” means with respect to any entity at any date, any direct or indirect corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity of which (A) more than 50% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity, or (B) is under the actual control of the Company. Representations, undertakings and obligations set forth in this Agreement shall be applicable only to Subsidiaries which exist or have existed at the applicable and relevant time.

 

Termination Date ” shall have the meaning ascribed to such term in Section 2.1.

 

Trading Market ” means any of the following markets or exchanges: the NYSE MKT LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTC Bulletin Board, the OTCQB, or the OTCQX (or any successors to any of the foregoing).

 

Transaction Documents ” means this Agreement, the Notes, the Warrants, Registration Rights Agreement, the Escrow Agreement, the Security Agreement, Company Lockup Agreements, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

Transfer Agent ” means the transfer agent for the Common Stock, and any successor transfer agent of the Company. As of the Closing Date, the Company is the Transfer Agent.

 

Underlying Shares ” means the shares of Common Stock issued and issuable upon conversion of the Notes and payment of interest on the Notes in accordance with the terms of the Notes and upon exercise of the Warrants in accordance with the terms of the Warrants.

 

Variable Priced Equity Linked Instruments ” shall have the meaning ascribed to such term in Section 4.9.

 

Variable Rate Transaction ” shall have the meaning ascribed to such term in Section 4.9.

 

Warrants ” means the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Article II hereof, in the form of Exhibit B attached hereto.

 

Warrant Shares ” means the shares of Common Stock issuable upon exercise of the Warrants.

 

ARTICLE II.
PURCHASE AND SALE
 

2.1  Initial Closing .  On the Initial Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, an aggregate of up to $770,000 principal amount of Notes (“ Maximum Amount ”) (but not less than $320,000 of principal amount of Notes) and Warrants as determined pursuant to Section 2.2(a) (such purchase and sale being the “ Initial Closing ”.  Each Purchaser shall deliver to the Company such Purchaser’s Subscription Amount, and the Company shall deliver to each Purchaser its respective Note and Warrants, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of G&M or such other location as the parties shall mutually agree.  Notwithstanding anything herein to the contrary, the Initial Closing Date shall occur on or before July 8, 2015 (the “ Termination Date ”).  If the Closing is not held on or before the Termination Date, the Company shall cause all subscription documents and funds to be returned, without interest or deduction to each prospective Purchaser.

 

 
6
 

 

2.2  Deliveries .

 

(a)

On or prior to the Initial Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)

this Agreement duly executed by the Company;

 
(ii)

Registration Rights Agreement executed by the Company;

   
(iii)

a Note with a principal amount equal to such Purchaser’s Subscription Amount registered in the name of such Purchaser;

 
(iv)

Warrants registered in the names of such Purchaser with an aggregate exercise price equal to one hundred percent (100%) of such Purchaser’s Subscription Amount, subject to adjustment as provided therein;

 
(v)

the Security Agreement executed by the Company and if applicable, the Subsidiaries;

 
(vi)

Company Lockup Agreements from Persons identified on Schedule 2.2(a)(vi);

 
(vii)

a legal opinion of Company Counsel, substantially in the form of Exhibit E attached hereto, and an opinion of Canadian Counsel to the Company with respect to matters of Canadian law;

 
(viii)

the Escrow Agreement duly executed by the Company.

 

(b)

On or prior to the Initial Closing Date, each Purchaser shall deliver or cause to be delivered to the Escrow Agent the following:

 

(i)

this Agreement duly executed by such Purchaser;

 
(ii)

Registration Rights Agreement duly executed by such Purchaser;

 
(iii)

such Purchaser’s Subscription Amount by wire transfer or as otherwise permitted under the Escrow Agreement, to the Escrow Agent;

 
(iv)

the Security Agreement executed by the Purchaser for itself and as the Collateral Agent; and

 
(v)

the Escrow Agreement duly executed by such Purchaser.

 

 
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2.3  Initial Closing Conditions .

 

(a)

The obligations of the Company hereunder to effect the Initial Closing are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Initial Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 
(ii)

all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Initial Closing Date shall have been performed;

 
(iii)

the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement; and

 
(iv)

from the date hereof to the Initial Closing Date, trading in securities in the United States generally as reported by Bloomberg L.P. shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

(b)

The respective obligations of a Purchaser hereunder to effect the Initial Closing, unless waived by such Purchaser, are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 
(ii)

all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 
(iii)

the Escrow Agent shall have received executed signature pages to this Agreement and aggregate Subscription Amount of not less than $320,000 prior to the Initial Closing;

 
(iv)

the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 
(v)

there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 
(vi)

from the date hereof to the Initial Closing Date, trading in securities in the United States generally as reported by Bloomberg L.P. shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

 
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2.4  Subsequent Closings .  In the event that the Maximum Amount of principal amount of Notes and Warrants are not sold and paid for at the Initial Closing and a Going Public Event has occurred, a subsequent Closing will be held within ten (10) Business Days after the occurrence of a Going Public Event substantially on the following terms and conditions as the Initial Closing (“ Subsequent Closing ”).

 

2.5  Subsequent Closing Deliveries .

 

(a)

On or prior to any Subsequent Closing, the Company shall deliver or cause to be delivered to the Escrow Agent the following:

 

(i)

this Agreement duly executed by the Company;

 
(ii)

an amount of shares of Common Stock issued in the name of each Purchaser equal to each such Purchaser’s Subsequent Closing Subscription Amount divided by the Conversion Price of the Note in effect on the Subsequent Closing Date (“Subsequent Closing Common Stock”); and

 
(iii)

Warrants registered in the names of each Purchaser representing the right to acquire an amount of shares of Common Stock equal to the Subsequent Closing Common Stock issuable to each such Purchaser

 

(b)

On or prior to the Subsequent Closing Date, each Purchaser shall deliver or cause to be delivered to the Escrow Agent, the following:

 

(i)

the Subsequent Closing Escrow Agreement duly executed by such Purchaser; and

 
(ii)

to Escrow Agent, such Purchaser’s Subscription Amount by wire transfer to the account specified in the Subsequent Closing Escrow Agreement.

 

2.6  Subsequent Closing Conditions .

 

(a)

The obligations of the Company hereunder in connection with the Subsequent Closing are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Subsequent Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 
(ii)

all obligations, covenants and agreements of each Purchaser to be performed at or prior to the Subsequent Closing Date shall have been performed;

 
(iii)

the delivery by each Purchaser to the Escrow Agent of the items set forth in Section 2.5(b) of this Agreement;

 
(iv)

the Escrow Agent shall have received Subsequent Closing Subscription Amounts from Purchasers in good funds in the amount designated on such Purchaser’s signed signature page to this Agreement; and

 

 
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(v)

from the date hereof to the Subsequent Closing Date, trading in securities in the United States generally as reported by Bloomberg L.P. shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Subsequent Closing.

 

(b)

The respective obligations of the Purchasers hereunder in connection with the Subsequent Closing are subject to the following conditions being met:

 

(i)

the accuracy in all material respects (determined without regard to any materiality, Material Adverse Effect or other similar qualifiers therein) on the Subsequent Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 
(ii)

all obligations, covenants and agreements of the Company under this Agreement required to be performed at or prior to the Subsequent Closing Date shall have been performed;

 
(iii)

a Going Public Event shall have timely occurred;

 
(iv)

the delivery by the Company to the Escrow Agent of the items set forth in Section 2.5(a) of this Agreement;

 
(v)

there shall have been no Material Adverse Effect with respect to the Company since the date hereof;

 
(vi)

the Escrow Agent shall have received Subsequent Closing Subscription Amounts from Purchasers in good funds in the amount designated on such Purchaser’s signed signature page to this Agreement;

 
(vii)

from the date hereof to the Subsequent Closing Date, trading in securities in the United States generally as reported by Bloomberg L.P. shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Subsequent Closing; and

 
(viii)

the Company will amend its Certificate of Incorporation and bylaws as reasonably requested by the Purchasers to conform to the forms of certificates of incorporation and bylaws generally employed by Ontario corporations anticipating to be public companies listed or traded on a Trading Market, including, as and if permitted by law, elimination of control share restrictions, anti-takeover/poison pill provisions, and the requirement that any of the directors of the Company must be Canadians or that a Canadian resident director attend all meetings of the board of directors of the Company.

 

 
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ARTICLE III. 

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company . Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made herein to which it refers and any other representation to the extent such Disclosure Schedule reasonably relates thereto without a requirement of a cross-reference. The Company hereby makes the following representations and warranties to each Purchaser as of the date hereof and each Closing Date unless as of a specific date therein in which case they shall be accurate as of such date:

 

(a)

Subsidiaries. The Company does not have any direct or indirect subsidiaries.

 
(b)

Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and, no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 
(c)

Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders and creditors in connection herewith or therewith other than in connection with the Required Approvals except those filings requires to be made with the Commission and state agencies after the Closing Date. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

 
11
 

 

(d)

No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not: (i) conflict with or violate any provision of the Company’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including Securities Laws and regulations), or by which any property or asset of the Company is bound or affected.

 
(e)

Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filing of Form D with the Commission, (ii) the filings with the Commission pursuant to the Registration Rights Agreement, and (iii) such filings as are required to be made under applicable Securities Laws (collectively, the “Required Approvals”).

 
(f)

Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 
(g)

Capitalization. The capitalization of the Company is as set forth in Schedule 3.1(g). Except as disclosed on Schedule 3.1(g), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as disclosed on Schedule 3.1(g), there are no outstanding options, employee or incentive stock option plans warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. There is no stock option plan in effect as of any Closing Date. Except as set forth on Schedule 3.1(g), the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in material compliance with all Securities Laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 
12
 

 

(h)

Financial Statements. Annexed hereto as Schedule 3.1(h) is financial information of the Company (“Financial Statements”). The Financial Statements have not been prepared in accordance with GAAP. The Financial Statements fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject to normal, immaterial adjustments and inclusion of footnotes which would be required pursuant to generally accepted accounting principles.

 
(i)

Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the Financial Statements except as disclosed on Schedule 3.1(i): (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate.

 
(j)

Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. At no time, neither the Company, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under Securities Laws or a claim of breach of fiduciary duty.

 
(k)

Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s employees is a member of a union that relates to such employee’s relationship with the Company, and the Company is not a party to a collective bargaining agreement, and the Company believe that its relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 
(l)

Compliance.The Company: (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is not in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is not or has not been in violation of any Applicable Law relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters or any other matter, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

 
13
 

 

(m)

Regulatory Permits. The Company possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as presently conducted, and as contemplated to be conducted, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.

 
(n)

Title to Assets. The Company has good and marketable title in all personal property owned by them that is material to the business of the Company, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made and, the payment of which is neither delinquent nor subject to penalties. The Company does not own any real property. Any real property and facilities held under lease by the Company held by it under valid, subsisting and enforceable leases with which the Company is in compliance.

 
(o)

Intellectual Property.

 

(i)

The term “Intellectual Property Rights” includes:

 

 

1.

the name of the Company, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications of the Company (collectively, “Marks'');

 

 

 

2.

all patents, patent applications, and inventions and discoveries that may be patentable of the Company (collectively, “Patents'');

 

 

 

3.

all copyrights in both unpublished works and published works of the Company (collectively, “Copyrights”);

 

 

 

4.

all rights in mask works of the Company (collectively, “Rights in Mask Works'');

 

 

 

5.

all know-how, trade secrets, confidential information, customer lists, software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets''); owned, used, or licensed by the Company, as licensee or licensor; and

 

 

 

6.

the license or right to directly or indirectly use any of the foregoing, whether perpetually or for a fixed term, whether or not subject to defeasement, and whether or not reduced to writing or otherwise memorialized.

 

(ii)

Agreements. Schedule 3.1(o) contains a complete and accurate list and description of all material Intellectual Property Rights and of all contracts relating to the Intellectual Property Rights to which the Company is a party or by which the Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $10,000 under which the Company is the licensee. There are no outstanding and, to Company’s knowledge, no threatened disputes or disagreements with respect to any such agreement.

 

 
14
 

 

(iii)

Know-How Necessary for the Business. The Intellectual Property Rights are all those necessary for the operation of the Company’s businesses as it is currently conducted or contemplated to be conducted. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Rights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use all of the Intellectual Property Rights. To the Company’s knowledge, no employee of the Company has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than of the Company.

 
(iv)

Patents. The Company is the owner of or licensee of all right, title and interest in and to each of the Patents, free and clear of all Liens and other adverse claims. All of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding. To the Company’s knowledge: (1) there is no potentially interfering patent or patent application of any third party, and (2) no Patent is infringed or has been challenged or threatened in any way. To the Company’s knowledge, none of the products manufactured and sold, nor any process or know-how used, by the Company infringes or is alleged to infringe any patent or other proprietary right of any other Person.

 
(v)

Trademarks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Liens and other adverse claims. All Marks that have been registered with the United States Patent and Trademark Office and Canadian equivalent are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Company’s knowledge, no such action is threatened with respect to any of the Marks. To the Company’s knowledge: (1) there is no potentially interfering trademark or trademark application of any third party, and (2) no Mark is infringed or has been challenged or threatened in any way. To the Company’s knowledge, none of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any third party.

 
(vi)

Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Liens and other adverse claims. All the Copyrights have been registered and are currently in compliance with formal requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of the Closing. No Copyright is infringed or, to the Company’s knowledge, has been challenged or threatened in any way. To the Company’s knowledge, none of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third party. All works encompassed by the Copyrights have been marked with the proper copyright notice.

 
(vii)

Trade Secrets. With respect to each Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual. The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets. The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Company’s knowledge, have not been used, divulged, or appropriated either for the benefit of any Person (other the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

 

 
15
 

 

(p)

Insurance. The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 
(q)

Transactions With Affiliates and Employees. Except as set forth in the Financial Statements and Transaction Documents, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $50,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) except as disclosed on Schedule 3.1(g). A copy of all employment agreements to which the Company is a party is annexed as Schedule 3.1(q).

 
(r)

Certain Fees. No brokerage, finder’s fees, commissions or due diligence fees are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any such fees or with respect to any claims made by or on behalf of any Persons for fees of a type contemplated in this Section 3.1(r) that may be due in connection with the transactions contemplated by the Transaction Documents.

 
(s)

Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 
(t)

Registration Rights. Except for the Purchasers, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 
(u)

Application of Takeover Protections. As of the Initial Closing Date, the Company will have taken all necessary action, if any, in order to render inapplicable as of the Initial Closing Date and thereafter any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) and the laws of Ontario that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

 
16
 

 

(v)

Disclosure. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, when taken together as a whole, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2.

 
(w)

Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, and the Company’s good faith estimate of the fair market value of its assets, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The Company Financial Statements and Schedule 3.1(i) set forth all outstanding liens secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 other than (i) trade accounts payable incurred by the Company in the ordinary course of business or (ii) debt financing from a licensed United States or Canadian bank regularly engaged in such lending activity, and (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, but excluding trade accounts payable incurred by the Company and its Subsidiaries in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with generally accepted accounting principles. The Company is not in default with respect to any Indebtedness.

 
(x)

Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company (i) has made or filed all United States and Canadian federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

 

 
17
 

 

(y)

Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.

 
(z)

Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 
(aa)

Money Laundering. The operations of the Company are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, Applicable Law, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 
(bb)

Office of Foreign Assets Control. Neither the Company nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 
(cc)

Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.

 
(dd)

No General Solicitation or Integration. To the best knowledge of the Company, neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. To the best knowledge of the Company, the Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 
(ee)

Indebtedness and Seniority. As of the date hereof, all Indebtedness and Liens are as set forth on the Company Financial Statements and Schedule 3.1(i). Except as set forth on the Company Financial Statements and Schedule 3.1(i), as of the Closing Date, no Indebtedness, equity, or Common Stock Equivalent is senior to the Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, and capital lease obligations (which is senior only as to the property covered thereby).

 

 
18
 

 

(ff)

FDA. The Company has no applications pending before the jurisdiction of the U.S. Food and Drug Administration (“FDA”).

 
(gg)

No Disqualification Events. With respect to the Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided thereunder. The Company will notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person. A form of Rule 506 Bad Actor Disqualification Questionnaire is annexed hereto as Exhibit J.

 
(hh)

Material Contracts.

  

(I)

Schedule 3.1(hh) lists each of the following Contracts of the Company (such Contracts, together with all Contracts concerning the occupancy, management or operation of any real property (including without limitation, brokerage contracts) listed or otherwise disclosed in the Disclosure Schedules and all Intellectual Property Rights identified on Schedule 3.1(o) (“Company Material Contracts”):

 

(A)

any Contract under which the Company: (a) sold or purchased (or agreed to sell or purchase) products or services pursuant to which the aggregate of payments due to or from the Company, respectively, in the one-year period ending on the date of this Agreement, was equal to or exceeded $50,000; (b) of which the Company reasonably anticipates that it will be selling or purchasing products or services during the one-year period after the date of this Agreement, in which the aggregate payments due to or from the Company, respectively, for such products or services are reasonably expected to equal or exceed $50,000; or (c) is a party involving consideration of $200,000 in the aggregate over the life of the Contract;

 
(B)

all Contracts, other than those Contracts entered into in the ordinary course of business that are not material, that require the Company to purchase its total requirements of any product or service from a third party or that contain “take or pay” provisions;

 
(C)

all Contracts that provide for the indemnification by the Company of any Person or the assumption of any Tax, environmental or other liability of any Person;

 
(D)

all Contracts in effect that relate to the acquisition or disposition of any business, a material amount of stock or assets of any other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);

 

 
19
 

 

(E)

all broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising Contracts to which the Company is a party;

 
(F)

all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) to which the Company is a party and which are not cancellable without material penalty or without more than 30 days' notice;

 
(G)

all Contracts pursuant to which the Company is or may become obligated to make any severance, change of control, termination or similar payment to any employee, officer, director, independent contractor or consultant;

 
(H)

except for Contracts relating to trade receivables, all Contracts relating to indebtedness (including, without limitation, guarantees) of the Company;

 
(I)

all Contracts with any Governmental Authority to which the Company is a party;

 
(J)

any Contract under which the Company has advanced or loaned any other Person an amount equal to or exceeding $50,000;

 
(K)

any Contract that would prohibit or is otherwise reasonably likely to materially delay the consummation of the transactions contemplated hereby;

 
(L)

any Contract providing for the settlement of any Legal Proceeding against the Company pursuant to which the Company has any existing material obligations;

 
(M)

any lease or similar agreement pursuant to which: (A) the Company is the lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by any Person for an annual rent in excess of $50,000; (B) the Company is the lessor of, or makes available for use by any Person, any tangible personal property owned by it for an annual rent in excess of $50,000; or (C) the Company is the lessee of, or holds or uses, any real property owned by any Person for an annual rent in excess of $50,000;

 
(N)

any Contract with any stockholder or any current officer or director or Affiliate of the Company;

 
(O)

all Contracts that limit or purport to limit the ability of the Company to compete in any line of business or with any Person or in any geographic area or during any period of time or that contain covenants of any other Person not to compete with the Company in any line of business or in any geographical area or not to solicit or hire any Person with respect to employment or any customers of the Company;

 
(P)

any Contract that provides any customer with pricing, discounts or benefits that change based on the pricing, discounts or benefits offered to other customers or clients of the Company, including any Contract which contains a “most favored nation” provision;

 

 
20
 

 

(Q)

any Contracts to which the Company is a party that provide for any joint venture, partnership or similar arrangement by the Company;

 
(R)

all collective bargaining agreements or Contracts with any union to which the Company is a party; and

 
(S)

any other Contract that is material to the Company and not previously disclosed pursuant to this Section 3.1(hh).

 

(II)

Each Company Material Contract is legally valid and binding on the Company and, to the knowledge of the Company, is a legally valid and binding obligation of the other parties thereto, in accordance with its terms and is in full force and effect. None of the Company or, to the Company's knowledge, any other party thereto is in material breach or violation of or default under (or is alleged to be in material breach of or default under), or has provided or received any notice of any intention to terminate, any Company Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of material default by the Company under any Company Material Contract or result in any other party having the right to terminate such Company Material Contract or would cause or permit the acceleration or other changes of any material right or obligation by any other party or the loss of any material benefit to the Company thereunder. Complete and correct copies of each Company Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Purchasers.

 

(ii)

Survival. The foregoing representations and warranties shall survive the Closing Date.

 

3.2  Representations and Warranties of the Purchasers . Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)

Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The address of the residence or principal offices of such Purchaser is set forth on the signature page hereto executed by such Purchaser and such address is not located in the Province of Ontario, Canada. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) to the extent the indemnification provisions contained in this Agreement may be limited by applicable law.

 

 
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(b)

Understandings or Arrangements. Such Purchaser understands that the Securities are “restricted securities” in the United States and Canada and have not been registered or qualified under the Securities Act or any other applicable Securities Law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any other applicable Securities Law, has no present intention of distributing any of such Securities and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to a registration statement or otherwise in compliance with applicable Securities Laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 
(c)

Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it converts a Note or exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. Such Purchaser has the authority and is duly and legally qualified to purchase and own the Securities. Such Purchaser is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. Such Purchaser has provided the information in the Accredited Investor Questionnaire attached hereto as Exhibit F (the “Investor Questionnaire”). The information set forth on the signature pages hereto and the Investor Questionnaire regarding such Purchaser is true and complete in all respects. Except as disclosed in the Investor Questionnaire, such Purchaser has had no position, office or other material relationship within the past three years with the Company or Persons (as defined below) known to such Purchaser to be affiliates of the Company, and is not a member of the Financial Industry Regulatory Authority or an “associated person” (as such term is defined under the FINRA Membership and Registration Rules Section 1011).

 
(d)

Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 
(e)

Information on Company. Purchasers are not deemed to have any knowledge of any information not included in the Financial Statements or the Transaction Documents unless such information is delivered in the manner described in the next sentence. Each Purchaser was afforded (i) the opportunity to ask such questions as such Purchaser deemed necessary of, and to receive answers from, representatives of the Company concerning the merits and risks of acquiring the Securities; (ii) the right of access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable such Purchaser to evaluate the Securities; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to acquiring the Securities. In addition, such Purchaser may have received in writing from the Company such other information concerning its operations, financial condition and other matters as such Purchaser has requested, identified thereon as OTHER WRITTEN INFORMATION (such other information is collectively, the “Other Written Information”), and considered all factors such Purchaser deems material in deciding on the advisability of investing in the Securities.

 
(f)

Compliance with Securities Act; Reliance on Exemptions. Such Purchaser understands and agrees that the Securities have not been registered under the 1933 Act or any applicable Securities Laws, by reason of their issuance in a transaction that does not require registration under the 1933 Act, and that such Securities must be held indefinitely unless a subsequent disposition is registered under the 1933 Act or any Securities Laws or is exempt from such registration. Such Purchaser understands and agrees that the Securities are being offered and sold to such Purchaser in reliance on specific exemptions from the registration requirements of Securities Laws and regulations and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities.

 

 
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(g)

Communication of Offer. Such Purchaser is not purchasing the Securities as a result of any “general solicitation” or “general advertising,” as such terms are defined in Regulation D, which includes, but is not limited to, any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or on the internet or broadcast over television, radio or the internet or presented at any seminar or any other general solicitation or general advertisement.

 
(h)

No Governmental Review. Such Purchaser understands that no United States, Canadian, federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Securities or the suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 
(i)

No Conflicts. The execution, delivery and performance of this Agreement and performance under the other Transaction Documents and the consummation by such Purchaser of the transactions contemplated hereby and thereby or relating hereto or thereto do not and will not (i) result in a violation of such Purchaser’s charter documents, bylaws or other organizational documents, if applicable, (ii) conflict with nor constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which such Purchaser is a party, nor (iii) result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to such Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on such Purchaser). Such Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or perform under the other Transaction Documents nor to purchase the Securities in accordance with the terms hereof, provided that for purposes of the representation made in this sentence, such Purchaser is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

 
(j)

Tax Liability. Such Purchaser has reviewed with its own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Such Purchaser understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

 
(k)

Canadian Restrictions. Each Purchaser acknowledges that the Securities have not been qualified for sale in Ontario or Canada and each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that the Securities shall not be offered, sold or traded directly or indirectly to any Person, to its knowledge, in the Yukon Territory or Canada before the date that is four months and one day after the later of (i) the original issuance of such Shares or Warrants, and (ii) the date the Company became a reporting issuer in any province or territory of Canada, unless such offer, sale or trade is to an “accredited investor” as such term is defined under National Instrument 45-106 Prospectus and Registration Exemptions .

 
(l)

Survival. The foregoing representations and warranties shall survive the Closing Date.

 

3.3  Reliance . The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

 
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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1  Transfer Restrictions .

 

(a)

Disposition of Securities. The Securities may only be disposed of in compliance with Securities Laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company at the Company’s expense, an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement, the Registration Rights Agreement and shall have the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement.

 
(b)

Legend. The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE 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. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledge or secure Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. At such Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

 
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(c)

Legend Removal. Certificates evidencing the Underlying Shares shall not contain any legend (“Unlegended Shares”) (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Underlying Shares and without volume or manner-of-sale restrictions, provided that Purchaser shall have first delivered to the Company reasonable and customary documentation requested in connection with the removal of the legend. or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date if required by the Transfer Agent to effect the removal of the legend hereunder. If all or any Notes are converted or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends. The Company agrees that following such time as such legend is no longer required under this Section 4.1(c), it will, no later than five Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such fifth Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends (however, the Corporation shall use reasonable best efforts to deliver such shares within three (3) Trading Days). The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 
(d)

Resale Requirements. Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell the Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 
(e)

Remedies. Commencing after the occurrence of a Going Public Event, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Conversion Shares or Warrant Shares delivered for removal of the restrictive legend and Conversion Shares delivered for conversion into Shares, $10 per Trading Day for each Trading Day following the Legend Removal Date or the date such Securities are to be delivered pursuant to the Note until such Common Stock certificate is delivered without a legend pursuant to Section 4.1(c) or such Conversion Shares, provided, however, that Purchaser delivered to the Company and its transfer agent and counsel executed documentation requested in connection with the removal of the legend. Nothing herein shall limit such Purchaser’s right to elect in lieu of the aforedescribed liquidated damages to pursue actual damages for the Company’s failure to deliver certificates representing any Underlying Shares as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

 
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(f)

Injunction. In the event a Purchaser shall request delivery of Securities as described in this Section 4.1 or Common Stock pursuant to the Note and the Company is required to deliver such Securities, the Company may not refuse to deliver Securities based on any claim that such Purchaser or anyone associated or affiliated with such Purchaser has not complied with Purchaser’s obligations under the Transaction Documents, or for any other reason, unless, an injunction or temporary restraining order from a court, on notice, restraining and or enjoining delivery of such unlegended shares shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Purchaser in the amount of 120% of the amount of the aggregate purchase price of the Securities intended to be subject to the injunction or temporary restraining order, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Purchaser to the extent Purchaser obtains judgment in Purchaser’s favor.

 
(g)

Buy-In. In addition to any other rights available to Purchaser, if the Company fails to deliver to a Purchaser Securities as required pursuant to this Agreement or the Note and after the Legend Removal Date or required delivery date pursuant to the Note the Purchaser, or a broker on the Purchaser’s behalf, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of the shares of Common Stock which the Purchaser was entitled to receive in unlegended form from the Company (a “Buy-In”), then the Company shall promptly pay in cash to the Purchaser (in addition to any remedies available to or elected by the Purchaser) the amount, if any, by which (A) the Purchaser’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate purchase price of the shares of Common Stock delivered to the Company for reissuance as unlegended Shares or as are required to be delivered pursuant to the Note, as the case may be, together with interest thereon at a rate of 15% per annum accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if a Purchaser purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase price of Shares delivered to the Company for reissuance as unlegended shares, the Company shall be required to pay the Purchaser $1,000, plus interest, if any. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.

 
(h)

DWAC. From and after the occurrence of a Going Public Event and until the End Date, in lieu of delivering physical certificates representing the Unlegended Shares, upon request of a Purchaser, so long as the certificates therefor do not bear a legend and the Purchaser is not obligated to return such certificate for the placement of a legend thereon, the Company shall cause its transfer agent to electronically transmit the Unlegended Shares by crediting the account of Purchaser’s prime broker with the Depository Trust Company through its Deposit Withdrawal At Custodian system, provided that the Company’s Common Stock is DTC eligible and the Company’s transfer agent participates in the Deposit Withdrawal At Custodian system. Such delivery must be made on or before the Legend Removal Date.

 

4.2  Acknowledgment of Dilution . The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

 
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4.3  Furnishing of Information .

 

(a)

The Company covenants and agrees with the Purchaser that until the Going Public Event, the Company shall deliver to the Purchaser: (i) for each of its first three fiscal quarters unaudited quarterly financial statements within 75 days after each quarter-end, (ii) subject to Section 4.3(b), annual audited financial statements prepared according to GAAP within 120 days of year-end, and (iii) copies of any documents or data furnished to the Company’s stockholders in their capacity as Company stockholders regarding the Company or its affairs, simultaneously with the furnishing of such documents or data to such stockholders. The foregoing obligations will be deemed satisfied if such financial statements have been filed with the Commission and are available on the EDGAR system.

 
(b)

Not later than sixty (60) days after the Initial Closing Date, the Company will provide to the Purchasers audited financial statements prepared according to GAAP by an auditing firm registered with the PCAOB, for the then most recent fiscal year and unaudited stub period financial statements in form and substance sufficient to meet the minimum requirements for filing with the Commission pursuant to Regulation S-X and Form F-1 or Form 10.

 
(c)

At any time commencing on the occurrence of a Going Public Event through the End Date, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) (a “Public Information Failure”) then, in addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to one percent (1.0%) of the aggregate principal amount of Notes and accrued interest held by such Purchaser on the day of a Public Information Failure and on every thirtieth (30th) day (pro-rated for periods totaling less than thirty days) thereafter until the earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Purchasers to transfer the Underlying Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled pursuant to this Section 4.2(b) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (ii) the third (3rd) Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

4.4  Conversion and Exercise Procedures . Each of the form of Notice of Conversion attached to the Note and form of Notice of Exercise included in the Warrants sets forth the totality of the procedures required of the Purchasers in order to convert the Note or exercise the Warrant. No additional legal opinion, other information or instructions shall be required of the Purchasers to convert their Note or exercise their Warrants. The Company shall honor conversions of the Note and exercises of the Warrants and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

 

 
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4.5 Use of Proceeds . The Company shall use the net proceeds from the sale of the Offering hereunder for expenses of the Offering and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.

 

4.6  Indemnification of Purchasers . Subject to the provisions of this Section 4.6, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of its representations, warranties or covenants under the Transaction Documents. The indemnification required by this Section 4.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

 

4.7  Reservation and Listing of Securities .

 

(a)

The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents, but not less than the Required Minimum. The Company will reserve the Required Minimum as of the Initial Closing Date.

 
(b)

If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 60th day after such date.

 

 
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4.8  Form D; Blue Sky Filings . The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.9  Subsequent Equity Sales . Except in connection with the Securities offered in this Agreement without prior written approval of a Majority in Interest until Notes and Warrants are no longer outstanding (“ End Date ”), from the date hereof until the End Date, the Company will not, without the consent of the Purchasers, enter into any Equity Line of Credit or similar agreement, nor issue nor agree to issue any common stock, floating or Variable Priced Equity Linked Instruments nor any of the foregoing or equity with price reset rights nor issue any equity or Common Stock Equivalents (subject to adjustment for stock splits, pro rata equity distributions, dividends, and recapitalizations) (collectively, the “ Variable Rate Transaction ”). For purposes hereof, “ Equity Line of Credit ” shall include any transaction involving a written agreement between the Company and an investor or underwriter whereby the Company has the right to “put” its securities to the investor or underwriter over an agreed period of time and at an agreed price or price formula, and “ Variable Priced Equity Linked Instruments ” shall include: (A) any debt or equity securities which are convertible into, exercisable or exchangeable for, or carry the right to receive additional shares of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security, or (2) with a fixed conversion, exercise or exchange price that is subject to being reset at some future date at any time after the initial issuance of such debt or equity security due to a change in the market price of the Company’s Common Stock since date of initial issuance, and (B) any amortizing convertible security which amortizes prior to its maturity date, where the Company is required or has the option to (or any investor in such transaction has the option to require the Company to) make such amortization payments in shares of Common Stock which are valued at a price that is based upon and/or varies with the trading prices of or quotations for Common Stock at any time after the initial issuance of such debt or equity security (whether or not such payments in stock are subject to certain equity conditions). For purposes of determining the total consideration for a convertible instrument (including a right to purchase equity of the Company) issued, subject to an original issue or similar discount or which principal amount is directly or indirectly increased after issuance, the consideration will be deemed to be the actual cash amount received by the Company in consideration of the original issuance of such convertible instrument.

 

4.10  Equal Treatment of Purchasers . No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered on a ratable basis to all of the parties to this Agreement. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.11  Integration . The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities.

 

4.12  Maintenance of Property and Insurance . Until the End Date, the Company shall keep all of its property, which is necessary or useful to the conduct of its business, in good working order and condition, ordinary wear and tear excepted. Until the End Date, the Company will maintain insurance coverage of the type and not less than the amount in effect as of the Initial Closing Date.

 

 
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4.13 Going Public Event . On or before the 180 days after the Initial Closing Date, the Company (i) will have had declared effective by the Commission the Registration Statement on Form F-1 for the purpose of having the class of Common Stock comprising the Underlying Shares subject to the reporting requirements of Section 13 or 15(d) under the Exchange Act, and (ii) have the Common Stock listed for trading or quoted on a Trading Market (the second such event to occur being a “ Going Public Event ”).

 

4.14 Preservation of Corporate Existence . Until the End Date, the Company shall preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is necessary in view of its business or operations and where the failure to qualify or remain qualified might reasonably have a Material Adverse Effect upon the financial condition, business or operations of the Company taken as a whole.

 

4.15 Shareholder Rights Plan . No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “ Acquiring Person ” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents.

 

4.16 Reimbursement . If any Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by such Purchaser to or with any current stockholder), solely as a result of such Purchaser’s acquisition of the Securities under this Agreement, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such Affiliate and any such Person. The Company also agrees that neither the Purchasers nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Securities under this Agreement.

 

4.17 Indebtedness . Until the occurrence of a Going Public Event, the Company will not incur an Indebtedness without the consent of a Majority in Interest.

 

 
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4.18 Appointment of Directors . Until the End Date, the Board of Directors of the Company shall consist of no more than three directors, one of which will be appointed by a Majority in Interest of the Purchasers. The initial Board of Directors as of the Initial Closing Date and the identities of the officers of the Company as of the Initial Closing Date are set forth on Schedule 4.18 hereto. The Company agrees to take all action necessary to effectuate the foregoing composition of the Board of Directors of the Company until the End Date. Until the End Date, except for the Purchasers’ director designee, only persons who have acquired Common Stock for not less than $10,000 and who hold such Common Stock may serve as directors of the Company. The requirement of the foregoing sentence will not apply to a Person serving as an independent director in compliance with the requirements of the Company’s principal Trading Market.

 

4.19 Participation in Future Financing .

 

(a)

From the date hereof until the End Date, upon any proposed issuance by the Company or any of its Subsidiaries of Common Stock, Common Stock Equivalents, other than (i) a rights offering to all holders of Common Stock (which may include extending such rights offering to holders of Notes) or (ii) an Exempt Issuance, (a “Subsequent Financing”), the Purchasers shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) pro rata to each other in proportion to their Subscription Amounts on the same terms, conditions and price provided for in the Subsequent Financing, unless the Subsequent Financing is an underwritten public offering, in which case the Company shall offer each Purchaser the right to participate in such public offering when it is lawful for the Company to do so, but no Purchaser shall be entitled to purchase any particular amount of such public offering.

 
(b)

At least five Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The requesting Purchaser shall be deemed to have acknowledged that the Subsequent Financing Notice may contain material non-public information. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.

 
(c)

Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no such notice from a Purchaser as of such fifth (5th) Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 
(d)

If by 5:30 p.m. (New York City time) on the fifth (5th ) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may affect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

 

 
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(e)

If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “Pro Rata Portion” means the ratio of (x) the principal amount of Notes purchased hereunder by a Purchaser participating under this Section 4.17 and (y) the sum of the aggregate principal amounts of Notes purchased hereunder by all Purchasers participating under this Section 4.17.

 
(f)

The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.18, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.

 
(g)

The Company and each Purchaser agree that if any Purchaser elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities purchased hereunder (for avoidance of doubt, the securities purchased in the Subsequent Financing shall not be considered securities purchased hereunder) or be required to consent to any amendment to or termination of, or grant any waiver, release or the like under or in connection with, this Agreement, without the prior written consent of such Purchaser.

 
(h)

Notwithstanding anything to the contrary in this Section 4.17 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of any material, non-public information, by the tenth (10th) Business Day following delivery of the Subsequent Financing Notice. If by such tenth (10th) Business Day, no public disclosure regarding a transaction with respect to the Subsequent Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material, non-public information with respect to the Company or any of its Subsidiaries.

 

4.20 Purchaser’s Exercise Limitations . From and after the occurrence of a Going Public Event, the Company shall not effect any exercise of the rights granted in Section 4.19 of this Agreement, and a Purchaser shall not have the right to exercise any portion of such rights granted in Section 4.19 to the extent that after giving effect to such exercise, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined in the Note), applied in the manner set forth in the Note.

 

4.21 DTC Program . From and after the occurrence of a Going Public Event, at all times that Notes or Warrants are outstanding, the Company shall use its best efforts to employ as the transfer agent for the Common Stock and Warrant Shares a participant in the Depository Trust Company Automated Securities Transfer Program and cause the Common Stock to be transferable pursuant to such program.

 

 
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ARTICLE V.  

MISCELLANEOUS

 

5.1  Termination . This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Initial Closing has not been consummated on or before July 8, 2015; provided , however , that such termination will not affect the right of any party to sue for any breach by any other party (or parties).

 

5.2  Fees and Expenses . Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. The Company agrees to pay pursuant to the Escrow Agreement reasonable legal and Escrow Agent fees of G&M, counsel to some of the Purchasers, in the amount of $20,000, which fee is payable at the Initial Closing, and expenses incurred in connection with the negotiation, preparation, execution and delivery of the Transaction Documents.

 

5.3  Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4  Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder or with respect to the Preferred Stock shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Company, to: 2304101 Ontario Inc., 100 College Street, Suite 213, Toronto, ON M5G 1L5, Attn: Scott Woodrow, Chief Executive Officer, facsimile: (800) 887-5525, with a copy by fax only to (which shall not constitute notice): David Lubin & Associates, PLLC, 108 S. Franklin Avenue, Suite 10, Valley Stream, NY 11580, Attn: David Lubin, Esq., fax: (516) 887-8250, and (ii) if to the Purchasers, to: the addresses and fax numbers indicated on the signature pages hereto, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, Attn: Edward M. Grushko, Esq., facsimile: (212) 697-3575.

 

5.5  Amendments; Waivers . No provision of this Agreement nor any other Transaction Document may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least a majority in interest (“ Majority in Interest ”) of the component of the affected Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement nor any other Transaction Document shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement thereof, nor shall any delay or omission of any party to exercise any right thereunder in any manner impair the exercise of any such right.

 

 
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5.6  Headings . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7  Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Following the Closing, any Purchaser may assign, on ten (10) Business Day prior notice any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound with respect to the transferred Securities by the provisions of the Transaction Documents that apply to the “Purchasers” and is able to make each and every representation made by Purchasers in this Agreement. No assignment by a Purchaser will be allowed if the result would be an increase in the number of actual or beneficial owners of the assigned securities.

 

5.8  No Third-Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

5.9  Governing Law . All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents 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 except as to these matters which are required by the laws of Ontario to be governed by the laws of Ontario. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any action, suit or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an 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 Agreement 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 other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.10, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.10  Survival . The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

 
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5.11  Execution . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12  Severability . If any term, provision, covenant or restriction of any Transaction Document is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13  Rescission and Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may, at any time prior to the Company’s performance of such obligations, rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided , however , that in the case of a rescission of a conversion of a Note or exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion or exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Note or Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).

 

5.14  Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15  Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16  Payment Set Aside . To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

 
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5.17  Usury . To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “ Maximum Rate ”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18  Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

5.19  Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.20  Construction . The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

 
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5.21  WAIVER OF JURY TRIAL . IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

5.22  Equitable Adjustment . Trading volume amounts, price/volume amounts and similar figures in the Transaction Documents shall be equitably adjusted (but without duplication) to offset the effect of stock splits, similar events and as otherwise described in this Agreement and Warrants.

 

5.23 Currency . All monetary amounts referred to in the Transaction Documents are in United States currency.

 

(Signature Pages Follow)

 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

2304101 ONTARIO INC.

 

Address for Notice:

100 College Street, Suite 213

Toronto, ON M5G 1L5

Fax: (800) 887-5525

By:

/s/ Scott Woodrow

 

Name:

Scott Woodrow

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

With a copy to (which shall not constitute notice):
David Lubin & Associates, PLLC
108 S. Franklin Avenue, Suite 10
Valley Stream, NY 11580
Attn: David Lubin, Esq.
Fax: (516) 887-8250

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

 
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[PURCHASER SIGNATURE PAGE TO 2304101 ONTARIO INC.

SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser: _____________________________________________________________

 

Signature of Authorized Signatory of Purchaser : ______________________________________

 

Name of Authorized Signatory: ____________________________________________________

 

Title of Authorized Signatory: _____________________________________________________

 

Email Address of Authorized Signatory: _____________________________________________

 

Facsimile Number of Authorized Signatory: __________________________________________

 

Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

______________________________________________________________________________

 

______________________________________________________________________________

 

______________________________________________________________________________

 

Initial Subscription Amount: US$                                                               

 

Warrants Issuable Upon Initial Closing: ______________________

 

Minimum Subsequent Closing Subscription Amount: US$________________

 

Maximum Allowed Subsequent Closing Subscription Amount: US$__________________

 

EIN Number, if applicable, will be provided under separate cover: ________________________

 

[SIGNATURE PAGES CONTINUE]

 

 

39


EXHIBIT 10.3

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE 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 BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: July ___, 2015

 

Principal Amount: _______________________

 

Original Conversion Price (subject to adjustment herein): $______________

 

SECURED CONVERTIBLE NOTE  

DUE JULY ___, 2017

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of 2304101 ONTARIO INC. , an Ontario corporation, (the “ Borrower ”), having its principal place of business at 100 College Street, Suite 213, Toronto, ON M5G 1L5, Fax: (800) 887-5525, due July ___, 2017 (this note, the “ Note ” and, collectively with the other notes of such series, the “ Notes ”).

 

FOR VALUE RECEIVED, Borrower promises to pay to ___________ or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of _____________ Dollars ( US$____________) on July ___, 2017 (the “ Maturity Date ”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Holder of this Note has been granted a security interest in assets of Borrower.

 

This Note is subject to the following additional provisions:

 

Section 1 . Definitions . For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

Alternate Consideration ” shall have the meaning set forth in Section 5(e).

 

 
1
 

 

Bankruptcy Event ” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) Borrower 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, (d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

Base Conversion Price ” shall have the meaning set forth in Section 5(b).

 

Beneficial Ownership Limitation ” shall have the meaning set forth in Section 4(d).

 

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

 

Buy-In ” shall have the meaning set forth in Section 4(c)(v).

 

Change of Control Transaction ” means, other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, (c) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

Conversion Date ” shall have the meaning set forth in Section 4(a).

 

Conversion Price ” shall have the meaning set forth in Section 4(b).

 

Conversion Shares ” means, collectively, the shares of Common Stock issued and issuable upon conversion of this Note and interest in accordance with the terms hereof.

 

Dilutive Issuance ” shall have the meaning set forth in Section 5(b).

 

 
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Dilutive Issuance Notice ” shall have the meaning set forth in Section 5(b).

 

Equity Conditions ” means, during the period in question, (a) Borrower shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the applicable Holder on or prior to the dates so requested or required, if any, (b) Borrower shall have paid all liquidated damages and other amounts owing to the applicable Holder in respect of this Note and the other Transaction Documents, (c) from an after the occurrence of a Going Public Event, there is an effective registration statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all of the Underlying Shares (and Borrower believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and Borrower believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares then issuable pursuant to the Transaction Documents, (f) an Event of Default has not occurred, whether or not such Event of Default has been cured, (g) there is no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (h) the issuance of the shares in question to the applicable Holder would not exceed the Beneficial Ownership Limitation, (i) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, and (j) the applicable Holder is not in possession of any information provided by Borrower that constitutes, or may constitute, material non-public information.

 

Event of Default ” shall have the meaning set forth in Section 8(a).

 

Fully-Diluted Basis ” shall mean the assumption that all options, warrants or other convertible securities or instruments or other rights to acquire Common Stock or any other existing or future classes of capital stock have been exercised or converted, as applicable, in full, regardless of whether any such options, warrants, convertible securities or instruments or other rights are then vested or exercisable or convertible in accordance with their terms.

 

Fundamental Transaction ” shall have the meaning set forth in Section 5(e).

 

Interest Payment Date ” shall have the meaning set forth in Section 2(a).

 

Interest Share Amount ” shall have meaning set forth in Section 2(a).

 

Mandatory Default Amount ” means the sum of (a) 125% of the outstanding principal amount of this Note and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

New York Courts ” shall have the meaning set forth in Section 9(d).

 

Note Register ” shall have the meaning set forth in Section 2(c).

 

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

 

 
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Original Issue Date ” means the date of the first issuance of the Notes, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.

 

Other Holders ” means holders of Other Notes.

 

Other Notes ” means Notes nearly identical to this Note issued to other Holders pursuant to the Purchase Agreement.

 

Permitted Indebtedness ” means (x) any liabilities for borrowed money or amounts owed not in excess of $50,000 in the aggregate (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto) not affecting more than $50,000 in the aggregate, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments not in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

Permitted Lien ” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of Borrower’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of Borrower and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, and (c) Liens incurred prior to the Closing Date in connection with Permitted Indebtedness under clauses (x), (y) thereunder, and Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of Borrower or its Subsidiaries other than the assets so acquired or leased.

 

Purchase Agreement ” means the Securities Purchase Agreement, dated as of June __, 2015 among Borrower and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

 

Share Delivery Date ” shall have the meaning set forth in Section 4(c)(ii).

 

Successor Entity ” shall have the meaning set forth in Section 5(e).

 

Section 2 . Interest .

 

a) Interest in Cash or in Kind . Holders shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal amount of this Note compounded monthly at the annual rate of four percent (4%) (as subject to increase as set forth in this Note) from the Original Issue Date through the Maturity Date. Interest shall be payable on each January 1 and July 1 commencing January 1, 2016 and on the Maturity Date (each an “ Interest Payment Date ”) (if any Interest Payment Date is not a Business Day, the applicable payment shall be due on the next succeeding Business Day) in cash or at the election of the Holder, such interest may be paid in duly authorized, validly issued, fully paid and non-assessable shares of Common Stock, or a combination thereof (the amount to be paid in shares of Common Stock, the “ Interest Share Amount ”). The Interest Share Amount will be determined by dividing the amount of interest on the subject Interest Payment Date by the Conversion Price in effect on such date. The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6. The Holder may elect to receive the Interest Share Amount in lieu of cash by notifying Borrower at least 5 calendar days prior to the relevant Interest Payment Date. Borrower may not pay any Interest Share Amount in excess of the Beneficial Ownership Limitation when applicable.

 

 
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b) Payment Grace Period . The Borrower shall not have any grace period to pay any monetary amounts due under this Note except as set forth in Section 8(a)(i).

 

c) Conversion Privileges . The Conversion Rights set forth in Section 4 shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. This Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Section 4 hereof.

 

d) Application of Payments . Interest on this Note shall be calculated on the basis of a 360-day year and twelve 30 day months. Payments made in connection with this Note shall be applied first to amounts due hereunder other than principal and interest, thereafter to interest and finally to principal.

 

e) Pari Passu . Except as otherwise set forth herein, all payments made on this Note and the Other Notes and all actions taken by the Borrower with respect to this Note and the Other Notes, including but not limited to Mandatory Conversion, shall be made and taken pari passu with respect to this Note and the Other Notes. Notwithstanding anything to the contrary contained herein or in the Transaction Documents, it shall not be considered non-pari passu for a Holder or Other Holder to elect to receive interest paid in shares of Common Stock or for the Borrower to actually pay interest in shares of Common Stock to such electing Holder or Other Holder.

 

f) Manner and Place of Payment . Principal and interest on this Note and other payments in connection with this Note shall be payable at the Holder’s offices as designated above in lawful money of the United States of America in immediately available funds without set-off, deduction or counterclaim. Upon assignment of the interest of Holder in this Note, Borrower shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof. Except as set forth herein, this Note may not be prepaid or mandatorily converted without the consent of the Holder.

 

Section 3. Registration of Transfers and Exchanges .

 

a) Different Denominations . This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations . This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Note Register . Prior to due presentment for transfer to Borrower of this Note, Borrower and any agent of Borrower may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither Borrower nor any such agent shall be affected by notice to the contrary.

 

 
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Section 4. Conversion .

 

a) Voluntary Conversion . At any time after the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “ Notice of Conversion ”), specifying therein the principal amount and interest, if any, of this Note to be converted and the date on which such conversion shall be effected (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to Borrower unless the entire principal amount of this Note has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and Borrower shall maintain records showing the principal amount(s) converted and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion within three (3) Business Days of delivery of such Notice of Conversion. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

b) Conversion Price . The conversion price for the principal and interest in connection with voluntary conversions by the Holder shall be $__________ , which represents a fully diluted pre-money valuation of $1,500,000 of the Borrower as of the Issue Date, subject to adjustment herein (the “ Conversion Price ”). The Conversion Price shall be reduced to $0.01 from and after one year after the Issue Date if a Going Public Event has not occurred.

 

c) Mechanics of Conversion .

 

i. Conversion Shares Issuable Upon Conversion . The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted and/or interest elected by the Holder or Borrower to be converted by (y) the Conversion Price.

 

ii. Delivery of Certificate Upon Conversion . Not later than five (5) Business Days after each Conversion Date (the “ Share Delivery Date ”), Borrower shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note. On or after the Effective Date, Borrower shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

iii. Failure to Deliver Certificates . If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower shall promptly return to the Holder any original Note delivered to Borrower and the Holder shall promptly return to Borrower the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

 
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iv. Obligation Absolute; Partial Liquidated Damages . Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to the Holder in connection with the issuance of such Conversion Shares; provided , however , that such delivery shall not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of 125% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Business Day for each Business Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for Borrower’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion . In addition to any other rights available to the Holder, if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “ Buy-In ”), then Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

 
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vi. Reservation of Shares Issuable Upon Conversion . Borrower covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than 150% of the aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and interest which has accrued and would accrue on such principal amount, assuming such principal amount is not converted through the Maturity Date. Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

vii. Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes and Expenses . The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid. Borrower shall pay all transfer agent fees required for same-day processing of any Notice of Conversion.

 

 
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d) Holder’s Conversion Limitations . Borrower shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, Borrower shall within two Business Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61 st day after such notice is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note. The limitation contained in this paragraph shall apply only from and after the occurrence of a Going Public Event.

 

 
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Section 5 . Certain Adjustments .

 

a) Stock Dividends and Stock Splits . If Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales . If, at any time while this Debenture is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “ Base Conversion Price ” and such issuances, collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance (as defined in the Purchase Agreement). If the Company enters into a Variable Rate Transaction despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

 

 
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c) Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d) Pro Rata Distributions . During such time as this Note is outstanding, if Borrower shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “ Distribution ”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 
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e) Fundamental Transaction . If, at any time while this Note is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. Borrower shall cause any successor entity in a Fundamental Transaction in which Borrower is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of Borrower under this Note and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Borrower and shall assume all of the obligations of Borrower under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as Borrower herein.

 

 
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f) Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.

 

g) Notice to the Holder .

 

i. Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, Borrower shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder . If (A) Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. After the occurrence of a Going Public Event, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

Section 6 . Exchange .

 

a) Mandatory Exchange . Provided all of the Equity Conditions are in effect on the date of the Going Public Event, unless waived by Holder or a Majority in Interest of Holders, then upon the occurrence of the Going Public Event, such date will be deemed a Conversion Date and the entire outstanding principal amount of this Note and any and all accrued interest thereon will convert at the then applicable Conversion Price, provided a Subsequent Closing occurs, and the Subsequent Closing Date will be the Share Delivery Date with respect to such conversion.

 

b) Optional Exchange . For so long as this Note remains outstanding, except in connection with an Exempt Issuance, the Holder shall have the right to participate in any offering of the Borrower’s Common Stock or Common Stock Equivalents on the same terms and conditions as any other subscriber, investor or participant in such offering and apply all or some of the amounts outstanding on this Note as payment for the securities to be acquired pursuant to such other offering.

 

 
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Section 7 . Negative Covenants . As long as any portion of this Note remains outstanding, unless the holders of at least 51% in principal amount of the then outstanding Notes shall have otherwise given prior written consent, Borrower shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c) amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

 

d) repay, repurchase or offer to repay, repurchase or otherwise acquire any shares of its Common Stock or Common Stock Equivalents other than the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents;

 

e) redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than the Notes if on a pro-rata basis), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness;

 

f) pay cash dividends or distributions on any equity securities of Borrower;

 

g) enter into any transaction with any Affiliate of Borrower which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of Borrower (even if less than a quorum otherwise required for board approval);

 

h) enter into any agreement with respect to any of the foregoing.

 

Section 8 . Events of Default .

 

a) “ Event of Default ” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event 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 (A) the principal or interest amounts of any Note which default is not cured within five (5) Business Days, or (B) liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within 10 calendar days after Borrower has become or should have become aware of such default;

 

 
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ii. Borrower shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by Borrower of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Business Days after notice of such failure sent by the Holder or by any Other Holder to Borrower and (B) 10 Business Days after Borrower has become or should have become aware of such failure;

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, including but not limited to failure to strictly comply with the provisions of the Warrants, or (B) any other material agreement, lease, document or instrument to which Borrower or any Subsidiary is obligated (and not covered by clause (xiii) below);

 

iv. any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any Other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. Borrower or any Subsidiary shall be subject to a Bankruptcy Event;

 

vi. Borrower or any Subsidiary shall default on any of its obligations under any Indebtedness;

 

vii. Borrower shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 30% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

viii. Subsequent to a Going Public Event, Borrower does not meet the current public information requirements under Rule 144;

 

ix. Borrower shall fail for any reason to deliver certificates to a Holder prior to the tenth Business Day after a Conversion Date pursuant to Section 4(c) or Borrower shall provide at any time notice to the Holder, including by way of public announcement, of Borrower’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof;

 

x. any Person shall breach any agreement delivered to the Holders pursuant to Section 2.2(a)(vi) of the Purchase Agreement;

 

xi. any monetary judgment, writ or similar final process shall be entered or filed against Borrower, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days;

 

xii. any dissolution, liquidation or winding up by Borrower or a material Subsidiary of a substantial portion of their business;

 

 
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xiii. cessation of operations by Borrower or a material Subsidiary;

 

xiv. The failure by Borrower or any material Subsidiary to maintain any material intellectual property rights, personal, real property, equipment, leases or other assets which are necessary to conduct its business (whether now or in the future) and such breach is not cured with twenty (20) days after written notice to the Borrower from the Holder;

 

xv. Subsequent to 120 days after a Going Public Event, an event resulting in the Common Stock not being listed or quoted on a Trading Market, or notification from a Trading Market that the Borrower is not in compliance with the conditions for such continued quotation and such non-compliance continues for twenty (20) days following such notification;

 

xvi. a Commission or judicial stop trade order or suspension from its Principal Trading Market;

 

xvii. a failure by Borrower to notify Holder of any material event of which Borrower is obligated to notify Holder pursuant to the terms of this Note or any other Transaction Document;

 

xviii. a default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties, or the occurrence of an event of default under any such other agreement to which Borrower and Holder are parties which is not cured after any required notice and/or cure period;

 

xix. the occurrence of an Event of Default under any Other Note; or

 

xx. any material provision of any Transaction Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against the Borrower, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower or any governmental authority having jurisdiction over Borrower or Holder, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny in writing that it has any liability or obligation purported to be created under any Transaction Document.

 

b) Remedies Upon Event of Default, Fundamental Transaction and Change of Control Transaction . If any Event of Default occurs up to the entire outstanding principal amount of this Note, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount rate. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default, interest on this Note shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. In connection with such acceleration described herein, the Holder need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

 
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Section 9 . Security Interest/Waiver of Automatic Stay . This Note is secured by a security interest granted to the Holder pursuant to a Security Agreement, as delivered by Borrower to Holder. The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower or a Subsidiary, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Transaction Documents and any other agreement to which the Borrower or a Subsidiary and Holder are parties (collectively, “ Loan Documents ”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder, The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that is waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to by represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel.

 

Section 10 . Miscellaneous .

 

a) Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to Borrower, to: 2304101 Ontario Inc., 100 College Street, Suite 213, Toronto, ON M5G 1L5, Attn: Scott Woodrow, Chief Executive Officer, facsimile: (800) 887-5525, with a copy by fax only to (which shall not constitute notice): David Lubin & Associates, PLLC, 108 S. Franklin Avenue, Suite 10, Valley Stream, NY 11580, Attn: David Lubin, Esq., fax: (516) 887-8250, and (ii) if to the Holder, to: the address and fax number indicated on the front page of this Note, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, Attn: Edward M. Grushko, Esq., facsimile: (212) 697-3575.

 

b) Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of Borrower. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.

 

 
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c) Lost or Mutilated Note . If this Note shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to Borrower.

 

d) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Note 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 conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (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 (including with respect to the enforcement of any of the Transaction Documents), 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 such New York Courts, 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 Note 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 other manner permitted by applicable 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 Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, 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 in the investigation, preparation and prosecution of such action or proceeding. This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.

 

e) Waiver . Any waiver by Borrower or the Holder of a breach of any provision of this Note 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 Note. The failure of Borrower or the Holder to insist upon strict adherence to any term of this Note 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 Note on any other occasion. Any waiver by Borrower or the Holder must be in writing.

 

f) Severability . If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note 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.

 

 
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g) Usury . If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. Borrower 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 Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and Borrower (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 impede 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.

 

h) Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i) Headings . The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

j) Amendment . Unless otherwise provided for hereunder, this Note may not be modified or amended or the provisions hereof waived without the written consent of Borrower and the Holder.

 

k) Facsimile Signature . In the event that the Borrower’s signature is delivered by facsimile transmission, PDF, electronic signature or other similar electronic means, such signature shall create a valid and binding obligation of the Borrower with the same force and effect as if such signature page were an original thereof.

 

l) Currency . All monetary amounts referred to in this Note are in United States currency.

 

*********************

 

(Signature Pages Follow)

 

 
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IN WITNESS WHEREOF , Borrower has caused this Note to be signed in its name by an authorized officer as of the _____ day of July, 2015.

 

 

2304101 ONTARIO INC.

 

       
By:

 

 

Name:

 

 

Title:

 

 

WITNESS:

 

__________________________________________

 

 
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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Convertible Note due July ___, 2017 of 2304101 Ontario Inc., an Ontario corporation (the “ Company ”), into shares of common stock (the “ Common Stock ”), of Borrower according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

Date to Effect Conversion: _________________________________________

 

Principal Amount of Note to be Converted: $____________________________

 

Number of shares of Common Stock to be issued: ________________________

 

Signature: _____________________________________________________

 

Name: ________________________________________________________

 

Address for Delivery of Common Stock Certificates: ____________________

______________________________________________________________

______________________________________________________________

 

Or

 

DWAC Instructions: _____________________________________________

 

Broker No:____________________________

Account No: __________________________

 

 

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EXHIBIT 10.4

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF SWHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

2304101 Ontario Inc.

 

Warrant Shares: _____________                              Initial Exercise Date: July __, 2015

 

THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, __________________ or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the five (5) year anniversary of the Initial Exercise Date (the “ Termination Date ”) to subscribe for and purchase from 2304101 ONTARIO INC. , an Ontario corporation (the “ Company ”), up to __________________ shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock; provided , however , in the event that the number of shares of Common Stock reserved for the issuance of the Warrant Shares is less than the maximum number of Warrant Shares issuable upon exercise of this Warrant, the Termination Date shall be tolled and extended until and to the extent that the Company has reserved such aggregate number of shares of Common Stock issuable upon the exercise in full of this Warrant. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b), as same may be adjusted as described herein.

 

Section 1 . Definitions . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “ Purchase Agreement ”), dated July __, 2015, among the Company and the purchasers signatory thereto.

 

VWAP ” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted for trading on a Trading Market and if prices for the Common Stock are then reported on the OTC Pink Marketplace maintained by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the volume weighted average price of the Common Stock on the first such facility (or a similar organization or agency succeeding to its functions of reporting prices), or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 
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Section 2 . Exercise .

 

a) Exercise of Warrant . Subject to Section 5(d) below, exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise in the form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within three (3) Business Day of receipt of such notice. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $_________________________________ , subject to adjustment hereunder (the “ Exercise Price ”).

 

c) Cashless Exercise . Commencing on the six month anniversary date of the Initial Exercise Date, at the option of the Holder, this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.

 

 
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Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

 

d) Mechanics of Exercise .

 

i. Delivery of Warrant Shares Upon Exercise . Warrant Shares purchased hereunder shall be transmitted by the Company or if the Company has so designated its transfer agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“ DWAC ”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is five (5) Trading Days after the delivery to the Company of the Notice of Exercise (such date, the “ Warrant Share Delivery Date ”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.

 

ii. Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights . If the Company fails to cause the transfer agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

 
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iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause the transfer agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

v. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi.  Charges, Taxes and Expenses . Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

vii.  Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

 
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e) Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to the conversion set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Common Stock Equivalents) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant may be exercised (in relation to other securities owned by the Holder together with any Affiliates) and which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 2(3), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the Beneficial Ownership Limitation provisions of this Section 2(e) shall continue to apply. Any such increase will not be effective until the 61 st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.

 

 
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Section 3 . Certain Adjustments .

 

a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) Subsequent Equity Sales . If the Company or any Subsidiary thereof, as applicable, at any time this Warrant is outstanding shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (it being understood and agreed that if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price), then simultaneously with the consummation of each Dilutive Issuance the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate Transaction, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised

 

 
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c) Subsequent Rights Offerings . In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “ Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d)  Pro Rata Distributions . During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a " Distribution "), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution ( provided , however , to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

 
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e) Fundamental Transaction . If, at any time while this Warrant is outstanding, (i) the Company , directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company , directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company , directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company , directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination ) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction. “ Black Scholes Value ” means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“ Bloomberg ”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

 
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f) Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)  Notice to Holder .

 

i. Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment..

 

ii. Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. From and after the occurrence of a Going Public Event, to the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 
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Section 4 . Transfer of Warrant .

 

a) Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions . If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.

 

e) Representation by the Holder . The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.

 

 
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Section 5 . Miscellaneous .

 

a) No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.

 

b) Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares .

 

The Company covenants that from the Initial Exercise Date and during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

 
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

e) Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h) Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability . No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

 
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j) Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l)  Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder .

 

m) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature Page Follows)

 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

 

2304101 Ontario Inc.

 

       
By:

 

 

Name:

 

 

Title:

 

 

 

14


EXHIBIT 10.5

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “ Agreement ”) is made and entered into as of June __, 2015 between 2304101 Ontario Inc., an Ontario corporation (the “ Company ”), and each of the several purchasers signatory hereto (each such purchaser, a “ Purchaser ” and, collectively, the “ Purchasers ”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, between the Company and each Purchaser (the “ Purchase Agreement ”).

 

The Company and each Purchaser hereby agrees as follows:

 

1. Definitions .

 

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

Advice ” shall have the meaning set forth in Section 6(d).

 

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

 

Effectiveness Date ” means, with respect to the Initial Registration Statement required to be filed hereunder, the 75 th calendar day following the Filing Date, and with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the 90 th calendar day following the date on which an additional Registration Statement is required to be filed hereunder; provided , however , that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Business Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Business Day, then the Effectiveness Date shall be the next succeeding Business Day.

 

Effectiveness Period ” shall have the meaning set forth in Section 2(a).

 

Event ” shall have the meaning set forth in Section 2(d).

 

Event Date ” shall have the meaning set forth in Section 2(d).

 

Filing Date ” means (i) with respect to the Initial Registration Statement required hereunder, the 75 th calendar day after the Initial Closing Date, or Subsequent Closing Date, if any, and (ii) with respect to any additional Registration Statements which may be required pursuant to Section 2(c) or Section 3(c), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

Holder ” or “ Holders ” means the holder or holders, as the case may be, from time to time of Registrable Securities.

 

Indemnified Party ” shall have the meaning set forth in Section 5(c).

 

Indemnifying Party ” shall have the meaning set forth in Section 5(c).

 

 
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Initial Registration Statement ” means the initial Registration Statement filed pursuant to this Agreement.

 

Losses ” shall have the meaning set forth in Section 5(a).

 

Plan of Distribution ” shall have the meaning set forth in Section 2(a).

 

Prospectus ” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

Registrable Securities ” means, as of any date of determination, (a) all of the shares of Common Stock then issuable upon conversion in full of the Notes (assuming on such date the Notes are converted in full without regard to any conversion limitations therein), (b) all shares of Common Stock issuable as interest on the Notes assuming all interest is converted to Common Stock (the “Interest Shares”) and assuming all such Notes will be held for not less than two (2) years (without regard to any conversion limitations therein), (c) any additional shares of Common Stock issuable in connection with any anti-dilution provisions in the Notes and Warrants (without giving effect to any limitations on conversion set forth in the Notes and Warrants), (d) Warrant Shares with respect to the Warrants issued on the Initial Closing Date (assuming that on such date such Warrants are exercised for cash and without regard to any limitations on exercise), (e) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing, (f) from and after the Subsequent Closing Date, the Common Stock issuable in connection with the Subsequent closing, and (g) Warrant Shares with respect to the Warrants issued on the Subsequent Closing Date (assuming that on such date such Warrants are exercised for cash and without regard to any limitations on exercise); provided, however , that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) commencing thirty-six (36) months after the Initial Closing Date, such securities become eligible for resale without the requirement for the Company to be in compliance with current public information under Rule 144 and without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 as set forth in a written opinion letter to such effect, addressed, delivered and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company).

 

 
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Registration Statement ” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(c) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Selling Stockholder Questionnaire ” shall have the meaning set forth in Section 3(a).

 

SEC Guidance ” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

2. Company Registration .

 

(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form F-1 (except if the Company is not then eligible to register for resale the Registrable Securities on Form F-1, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(e)) and shall contain (unless otherwise directed by at least a majority in interest of the Holders of Registrable Securities then outstanding) substantially the “ Plan of Distribution ” attached hereto as Annex A . Subject to the terms of this Agreement, the Company shall cause a Registration Statement filed under this Agreement (including, without limitation, under Section 3(c)) to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) commencing thirty-six (36) months after the Initial Closing Date, may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which such securities were issued or are issuable, were at no time held by any Affiliate of the Company) (the “ Effectiveness Period ”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. Eastern Time on a Business Day. The Company shall immediately notify the Holders via facsimile or by e-mail of the effectiveness of a Registration Statement on the same Business Day that the Company telephonically confirms effectiveness with the Commission, which shall be the date requested for effectiveness of such Registration Statement. The Company shall, by 9:30 a.m. Eastern Time on the Business Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424. Failure to so notify the Holder within one (1) Business Day of such notification of effectiveness or failure to file a final Prospectus as foresaid shall be deemed an Event under Section 2(d) hereof.

 

 
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(b) Notwithstanding the registration obligations set forth in Section 2(a), if the Commission informs the Company that all of the Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform each of the Holders thereof and file amendments to the Initial Registration Statement as required by the Commission, covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form F-1 or such other form available to register for resale the Registrable Securities as a secondary offering, subject to the provisions of Section 2(e); provided , however , that prior to filing such amendment, the Company shall be obligated to use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.

 

(c)  Notwithstanding any other provision of this Agreement and subject to the payment of liquidated damages pursuant to Section 2(d), if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), unless otherwise directed in writing by a Holder as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will be reduced as follows:

 

a.

First, the Company shall reduce or eliminate any securities to be included by any Person other than a Holder;

 
b.

Second, the Company shall reduce Registrable Securities represented by Warrant Shares (applied, in the case that some Warrant Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Dividend Shares held by such Holders) fir with respect to the Warrant Shares issuable upon exercise of the Warrants issued on the Subsequent Closing Date and thereafter the Initial Closing Date; and

 
c.

Third, the Company shall reduce Registrable Securities represented by Conversion Shares (applied, in the case that some Conversion Shares may be registered, to the Holders on a pro rata basis based on the total number of unregistered Conversion Shares held by such Holders).

 

In the event of a cutback hereunder, the Company shall give the Holder at least five (5) Business Days prior written notice along with the calculations as to such Holder’s allotment. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form F-1 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

 
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(d)  If: (i) the Initial Registration Statement is not filed on or prior to its Filing Date (if the Company files a Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the Commission pursuant to the Securities Act, within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) prior to the effective date of a Registration Statement, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within twenty (20) Business Days after the receipt of comments by or notice from the Commission that such amendment is required in order for such Registration Statement to be declared effective, or (iv) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the Commission by the Effectiveness Date of the Initial Registration Statement, or (v) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or the Holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than fifteen (15) calendar days or more than an aggregate of thirty (30) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “ Event ”, and for purposes of clauses (i) and (iv), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Business Day period is exceeded, and for purpose of clause (iii) the date which such twenty (20) day period is exceeded, and for purpose of clause (v) the date on which such fifteen (15) or thirty (30) calendar day period, as applicable, is exceeded being referred to as “ Event Date ”), then, in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 2% of the aggregate purchase price paid by such Holder for the Registrable Securities held by Holder for the first such Event Date and each thirty (30) day anniversary of such Event Date on each such Subsequent Event Date. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 15% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. The foregoing liquidated damages shall be payable regardless of the Company’s compliance with Section 2(b) and 2(c) above.

 

3. Registration Procedures .

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a)  Not less than five (5) Business Days prior to the filing of each Registration Statement and not less than one (1) Business Day prior to the filing of any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent registered public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to each Holder, to conduct a reasonable investigation within the meaning of the Securities Act. Notwithstanding the above, the Company shall not be obligated to provide the Holders advance copies of any universal shelf registration statement registering securities in addition to those required hereunder, or any Prospectus prepared thereto. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than five (5) Business Days after the Holders have been so furnished copies of a Registration Statement or one (1) Business Day after the Holders have been so furnished copies of any related Prospectus or amendments or supplements thereto. Each Holder agrees to furnish to the Company a completed questionnaire in the form attached to this Agreement as Annex B (a “ Selling Stockholder Questionnaire ”) on a date that is not less than two (2) Business Days prior to the Filing Date or by the end of the fourth (4 th ) Business Day following the date on which such Holder receives draft materials in accordance with this Section.

 

 
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(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and provide as promptly as reasonably possible to the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement (provided that, the Company shall excise any information contained therein which would constitute material non-public information regarding the Company or any of its Subsidiaries), and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

(d)  Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Business Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus, provided , however , in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

 
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(e) Avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)  Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

 

(g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

(h) The Company shall cooperate with any broker-dealer through which a Holder proposes to resell its Registrable Securities in effecting a filing with the FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested by any such Holder, and the Company shall pay the filing fee required by such filing within two (2) Business Days of request therefor.

 

(i) Prior to any resale of Registrable Securities by a Holder, to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that, the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(j) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

 
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(k) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(k) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages otherwise required pursuant to Section 2(d), for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

 

(l) Comply with all applicable rules and regulations of the Commission.

 

(m) From and after the date the Company becomes eligible to use Form S-3 or F-3, the Company shall maintain eligibility for use of Form S-3 or F-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

 

(n) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Business Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

 

(o) The Company shall use its best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

 

(p) Except as required by applicable law, neither the Company nor any Affiliate thereof shall identify any Holder as an underwriter in any public disclosure or filing with the Commission, the Principal Market or any Eligible Market and any Buyer being deemed an underwriter by the Commission shall not relieve the Company of any obligations it has under this Agreement or any other Transaction Document (as defined in the Purchase Agreement); provided, however, that the foregoing shall not prohibit the Company from including the disclosure found in the "Plan of Distribution" section attached hereto as Annex A in the Registration Statement.

 

 
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(q) The Company has not entered, as of the date hereof, nor shall the Company, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of preventing the Company from performing its obligations hereunder.

 

4. Registration Expenses . All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the Commission, (B) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

5. Indemnification .

 

(a) Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, members, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other Persons with a functionally equivalent role of a Person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “ Losses ”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(h).

 

 
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(b) Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with any applicable prospectus delivery requirements of the Securities Act through no fault of the Company or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company expressly for inclusion in such Registration Statement or such Prospectus or (ii) to the extent, but only to the extent, that such information relates to such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or in any amendment or supplement thereto or (iii) in the case of an occurrence of an event of the type specified in Section 3(d)(iii)-(vi), to the extent, but only to the extent, related to the use by such Holder of an outdated, defective or otherwise unavailable Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated, defective or otherwise unavailable for use by such Holder and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. In no event shall the liability of any selling Holder under this Section 5(b) be greater in amount than the dollar amount of the net proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

 

(c) Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “ Indemnified Party ”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “ Indemnifying Party ”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that, the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have materially and adversely prejudiced the Indemnifying Party.

 

 
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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses, (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding, or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of no more than one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

 

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Business Days of written notice thereof to the Indemnifying Party; provided, that, the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) not to be entitled to indemnification hereunder.

 

(d) Contribution . If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

 

 
11
 

 

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute pursuant to this Section 5(d), in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6. Miscellaneous .

 

(a) Remedies . In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

(b) No Piggyback on Registrations; Prohibition on Filing Other Registration Statements . Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statements other than the Registrable Securities. Unless otherwise approved by the Holders of at least a majority in interest of the Registrable Securities then outstanding, the Company shall not file any other registration statements (other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans which are Exempt Issuances) until the latest of (i) all Registrable Securities are registered pursuant to a Registration Statement that is declared effective by the Commission, (ii) twelve months after the Initial Closing Date, or (iii) all of the Registrable Securities have been transferable pursuant to Rule 144 by non-Affiliates of the Company for six months without the requirement for the Company to be in compliance with correct public information requirements under Rule 144.

 

(c) Compliance . Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to a Registration Statement.

 

 
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(d) Discontinued Disposition . By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “ Advice ”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(d).

 

(e) Piggy-Back Registrations . If, at any time during the Effectiveness Period, there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine, after having obtained consent from the Holders of at least a majority in interest of the Registrable Securities then outstanding, to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the Company’s stock option or other employee benefit plans, then the Company shall deliver to each Holder a written notice of such determination and, if within fifteen days after the date of the delivery of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided , however , that the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144 (without the requirement for the Company to be in compliance with current public information under Rule 144 and without volume restrictions or current public information requirements) promulgated by the Commission pursuant to the Securities Act (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company.

 

(f) Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon exercise or conversion of any Security). If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided , however , that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(f). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

 
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(g)  Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

 

(h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.

 

(i) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person.

 

(j) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

(k) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement .

 

(l)  Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(m) Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

 
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(n)  Headings . The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(o) Independent Nature of Holders’ Obligations and Rights . The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not asset any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

 

********************

 

(Signature Pages Follow)

 

 
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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

 

 

2304101 ONTARIO INC.

AN ONTARIO corporation

 

       
By: /s/ Scott Woodrow

 

 

Name:

Scott Woodrow

 

 

Title:

Chief Executive Officer and President

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

 
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[SIGNATURE PAGE OF HOLDERS TO

2304101 ONTARIO INC. RRA]

 

Name of Holder: _______________________________________________________________

 

Signature of Authorized Signatory of Holder : ________________________________________

 

Name of Authorized Signatory: ____________________________________________________

 

Title of Authorized Signatory: _____________________________________________________

 

Email Address of Authorized Signatory: _____________________________________________

 

Facsimile Number of Authorized Signatory: ___________________________________________

 

Address for Notice to Holder: _____________________________________________________

 

____________________________________________________________________________

 

____________________________________________________________________________

 

[SIGNATURE PAGES CONTINUE]

 

 
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Annex A

 

Plan of Distribution

 

Each Selling Stockholder (the “ Selling Stockholders ”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTC Bulletin Board, OTCQB or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

 

·

To or through underwriters or broker-dealers;

 

 

 

 

·

ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers;

 

 

 

 

·

block trades in which the broker dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

 

 

 

·

purchases by a broker dealer as principal and resale by the broker dealer for its account;

 

 

 

 

·

an exchange distribution in accordance with the rules of the applicable exchange;

 

 

 

 

·

privately negotiated transactions;

 

 

 

 

·

settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

 

 

 

 

·

in transactions through broker dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

 

 

 

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

 

 

 

·

a combination of any such methods of sale; or

 

 

 

 

·

any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”), if available, rather than under this prospectus.

 

Broker dealers engaged by the Selling Stockholders may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

 
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In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).

 

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities for itself and Selling Stockholders. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholders.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

 
19
 

 

Annex B

 

2304101 ONTARIO INC.

 

Selling Stockholder Notice and Questionnaire

 

The undersigned beneficial owner of common stock (the “ Registrable Securities ”) of 2304101 Ontario Inc., a Nevada corporation (the “ Company ”), understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “ Commission ”) a registration statement (the “ Registration Statement ”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “ Securities Act ”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement (the “ Registration Rights Agreement ”) to which this document is annexed. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

 

Certain legal consequences arise from being named as a selling stockholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling stockholder in the Registration Statement and the related prospectus.

 

NOTICE

 

The undersigned beneficial owner (the “ Selling Stockholder ”) of Registrable Securities hereby elects to include the Registrable Securities owned by it in the Registration Statement.

 

 
20
 

 

The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

 

QUESTIONNAIRE

 

1.

Name.

 

(a)

Full Legal Name of Selling Stockholder

 

 

 

 

 

 

 

(b)

Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities are held:

 

 

 

 

 

(c)

Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by this Questionnaire):

 

 

 

 

 

2.

Address for Notices to Selling Stockholder:

 

_________________________________________________________________________________

 

_________________________________________________________________________________

 

_________________________________________________________________________________

 

Telephone: ________________________________________________________________________

 

Fax: _____________________________________________________________________________

 

Contact Person: ____________________________________________________________________

 

 

3.

Broker-Dealer Status:

 

(a)

Are you a broker-dealer?

 

 

 

 

 

Yes  ¨ No ¨

 

(b)

If “yes” to Section 3(a), did you receive your Registrable Securities as compensation for investment banking services to the Company?

 

 

 

Yes  ¨ No ¨

 

Note:

If “no” to Section 3(b), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

 
21
 

 

(c)

Are you an affiliate of a broker-dealer?

 

 

 

Yes  ¨ No ¨

 

(d)

If you are an affiliate of a broker-dealer, do you certify that you purchased the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes  ¨ No ¨

 

Note:

If “no” to Section 3(d), the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

 

4.

Beneficial Ownership of Securities of the Company Owned by the Selling Stockholder.

 

Except as set forth below in this Item 4, the undersigned is not the beneficial or registered owner of any securities of the Company other than the securities issuable pursuant to the Purchase Agreement.

 

(a)

Type and Amount of other securities beneficially owned by the Selling Stockholder:

 

 

 

22

 

 

5.

Relationships with the Company:

 

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

 

State any exceptions here:

 

 

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

 

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 5 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus and any amendments or supplements thereto.

 

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

 

Date: _______________________

Beneficial Owner: ______________________

 

       
By:

 

 

Name: 

 

 

Title:

 

 

PLEASE FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

 

 

23


 

EXHIBIT 10.6

 

GENERAL SECURITY AGREEMENT

Non-Consumer

 

TO:

Jesse Kaplan as Collateral Agent for the Purchasers

(" Collateral Agent ")

 

 

FROM:

2304101 Ontario Inc. (operating as Behavioural Neurological Applications and Solutions), an Ontario corporation (the " Debtor ")

 

1.

DEFINITIONS

 

 

 

All capitalized terms used in this Agreement and in any schedules attached hereto shall, except where defined herein, be interpreted pursuant to their respective meanings when used in the Personal Property Security Act (the " PPSA ") of the province or territory referred to in the "Governing Law" section of this Agreement (the " Province ") and any regulations issued thereunder.

 

2.

SECURITY INTEREST AND CHARGE

 

(a)

As general and continuing collateral security for the payment and performance of all debts, liabilities and obligations of the Debtor to the Purchasers identified on Schedule “C” hereto (the “ Purchasers ”) under a certain Securities Purchase Agreement (the “ SPA ”) among such Purchasers, the Notes acquired in connection therewith, the obligations of the Debtor arising under and in connection with the Transaction Documents (as defined in the SPA) howsoever arising, both present and future, absolute and contingent, direct and indirect, matured or not, and whether the Debtor be bound alone or jointly or severally with others (the " Indebtedness "), the Debtor hereby assigns and grants a mortgage, pledge, charge and security interest (which, in the case of any real property and any other Collateral (as hereinafter defined) not subject to the PPSA, shall be a mortgage as and by way of a floating charge) to and in favour of Collateral Agent in all property, assets and undertaking of the Debtor referred to in Schedule "A" (including all such property, assets and undertaking owned or leased by or licensed to the Debtor and in which the Debtor at any time has an interest or to which the Debtor is or at any time may become entitled) and in all Proceeds and renewals thereof, Accessions thereto and substitutions therefor (herein collectively called the " Collateral ").

   
(b)

The assignments, mortgages, pledges, charges, security interests and floating charges (if applicable) granted hereunder are hereinafter collectively called the " Security Interests ". The Debtor warrants and acknowledges to and in favour of Collateral Agent that:

 

 

(i)

the Debtor has rights in all existing Collateral and the parties intend the Security Interest hereby created in any of the Debtor's existing property which is subject to the PPSA to attach upon execution and delivery hereof;

 

 

 

(ii)

the parties intend the Security Interest created in any of the Debtor's after-acquired property which is subject to the PPSA to attach at the same time as it acquires rights in the after-acquired property; and

 

 

 

(iii)

value has been given.

 

 
1
 

 

(c)

For greater certainty, where the Collateral includes all of the Debtor's present and after-acquired Personal Property, and any of such Collateral is or becomes located on lands or premises leased or subleased by the Debtor, the Collateral includes the Debtor's interest as tenant or lessee under any and all of such leases and subleases of the lands or premises.

 
(d)

The last day of any term reserved by any lease or agreement to lease is excepted out of the Security Interest and does not form part of the Collateral, but the Debtor shall stand possessed of such last day in trust to assign the same to any person acquiring such term.

 
(e)

If the grant of the Security Interest in respect of any contract, lease, agreement to lease, license, permit, approval or intellectual property right would result in the termination or breach of such contract, lease, agreement to lease, license, permit, approval or intellectual property right, then the applicable contract, lease, agreement to lease, license, permit, approval or intellectual property right will not be subject to the Security Interest but will be held in trust by the Debtor for the benefit of Collateral Agent and, on exercise by Collateral Agent of any of its rights under this Agreement following Default, assigned by the Debtor as directed by Collateral Agent.

 

3.

CONTINUOUS INTEREST

 

 

 

The Security Interest hereby created is a continuing charge, and shall secure all Indebtedness notwithstanding that the Indebtedness may be fluctuating and even may from time to time and at any time be reduced to a nil balance, and notwithstanding that monies advanced may be repaid and future advances may be made to or to the order of the Debtor or in respect of which the Debtor is liable. The Security Interest maintains priority for all Indebtedness secured hereby whether incurred or arising before or after the creation or registration of any Encumbrance (as hereinafter defined) and notwithstanding that at any time there may not be any Indebtedness then outstanding.

 

4.

AUTHORIZED DEALING WITH COLLATERAL

 

 

 

Until Default (as hereinafter defined), or until Collateral Agent provides written notice to the contrary to the Debtor, the Debtor may deal with the Collateral in the ordinary course of the Debtor's business in any manner not inconsistent with the provisions of this Agreement, provided that the Debtor shall not, without the prior written consent of Collateral Agent:

 

(a)

sell, exchange, lease, transfer or otherwise dispose of any of the Collateral other than inventory being sold, leased or disposed of for fair market value in the ordinary course of the Debtor's business as it is presently conducted and for the purpose of carrying on that business, or

(b)

create, incur or permit to exist any security interest, mortgage, lien, claim, charge or other encumbrance (herein collectively called the " Encumbrances " and individually, an " Encumbrance ") upon any of the Collateral whether it would rank or purport to rank in priority to, equally with or behind the Security Interest granted under this Agreement, except operating leases incurred in the ordinary course of the Debtor's business.

 

Nothing in this Agreement or otherwise creates a postponement or subordination of any priority of Collateral Agent in any of the Collateral in favour of any present or future holder of an Encumbrance (including without limitation, a holder of a lease) in any of the Collateral.

 

 

If the Collateral comprises any Investment Property, Chattel Paper, Instrument, Money or Document of Title, the Debtor will, forthwith upon request, deliver the same to Collateral Agent and will allow Collateral Agent to retain possession of the same. If the Collateral comprises any Investment Property that is a Certificated Security, the Debtor will, upon request, deliver to Collateral Agent all Security Certificates relating to such Certificated Security endorsed in blank. If the Collateral comprises any Investment Property that is an Uncertificated Security or a Security Entitlement, the Debtor, on request by Collateral Agent, will, or will cause the issuer of such Investment Property to, or will cause the Securities Intermediary that holds such Investment Property to, take all steps as are necessary to give exclusive control (as that term is used in the PPSA) over such Investment Property to Collateral Agent on terms and conditions satisfactory to Collateral Agent.

 

 
2
 

 

5.

REPRESENTATIONS AND WARRANTIES OF THE DEBTOR

 

 

The Debtor hereby represents and warrants to Collateral Agent that:

 

(a)

the Collateral is owned by the Debtor free of all Encumbrances, save for those Encumbrances agreed to in writing between Collateral Agent and the Debtor and those shown on Schedule "B" hereto;

 
(b)

each Account, Chattel Paper and Instrument constituting Collateral is enforceable in accordance with its terms against the party obligated to pay the same (the "Account Debtor") and the amount represented by the Debtor to Collateral Agent from time to time as owing by each Account Debtor will be the correct amount actually and unconditionally owing from such Account Debtor, except for normal cash discounts where applicable;

 
(c)

as at the date hereof, the description of the Collateral in Schedule "A" hereto is complete and accurate, and, if so requested by Collateral Agent, all serial numbers and vehicle identification numbers affixed to or ascribed to any of the Collateral have been provided to Collateral Agent;

 
(d)

the Debtor has full power and authority to conduct its business and own its properties in all jurisdictions in which the Debtor carries on business, except to the extent any failure to do so would not reasonably be expected to have a material adverse effect on its business, operations or financial condition or impair its ability to perform its obligations hereunder, and has full power and authority to grant to Collateral Agent the Security Interest created under this Agreement and to execute, deliver and perform all of its obligations under this Agreement;

 
(e)

this Agreement has been duly executed and delivered by the Debtor and constitutes a legal, valid and binding obligation of the Debtor, subject only that such enforcement may be limited by bankruptcy, insolvency and any other similar laws of general application affecting creditors' rights generally and by rules of equity limiting enforceability by specific performance;

 
(f)

there is no provision in any agreement to which the Debtor is a party, nor is there any statute, rule or regulation, or to the knowledge of the Debtor any judgment, decree or order of any court, binding on the Debtor which would be contravened by the execution and delivery of this Agreement;

 
(g)

there is no litigation, proceeding or dispute pending, or to the knowledge of the Debtor threatened, against or affecting the Debtor or the Collateral, the adverse determination of which might materially and adversely affect the Debtor's business, financial condition or operations or impair the Debtor's ability to perform its obligations hereunder or affect the priority of the Security Interest created hereunder or affect the rights and remedies of Collateral Agent hereunder;

 
(h)

the name of the Debtor is accurately and fully set out below, and the Debtor is not nor has it been known by any other name other than as set out below;

 

 
3
 

 

(i)

as at the date hereof, the Collateral is located in the Province and such other jurisdictions indicated on Schedule "A" hereto. With respect to Goods (including Inventory) constituting Collateral, the locations specified in Schedule "A" are accurate and complete save for Goods in transit to such locations and Inventory on lease or consignment; and all buildings, fixtures or Goods about to become fixtures and all crops and all oil, gas or other minerals to be extracted and all timber to be cut which forms part of the Collateral will be situate at one of such locations. For certainty, the Security Interests attach to all Collateral, wherever located, whether or not in jurisdictions indicated on Schedule "A" hereto;

 
(j)

the Collateral does not consist of Consumer Goods;

 
(k)

the Collateral, except as previously communicated to Collateral Agent in writing, does not consist of Goods that are of a kind that are normally used in more than one jurisdiction; and

 
(l)

the Debtor's place of business, or if more than one place of business, the Debtor's chief executive office, is located in the Province (unless otherwise advised to Collateral Agent in writing).

 

6.

COVENANTS OF THE DEBTOR

 

 

The Debtor hereby covenants with Collateral Agent that:

 

(a)

the Debtor owns and will maintain the Collateral free of Encumbrances, except those agreed to in writing between Collateral Agent and the Debtor and those described in Schedule "B" hereto, or hereafter approved in writing by Collateral Agent prior to their creation or assumption, and will defend its title to the Collateral for the benefit of Collateral Agent against the claims and demands of all persons;

 
(b)

the Debtor will maintain the Collateral in good condition and repair and will not allow the value of the Collateral to be materially impaired and will permit Collateral Agent or such person as Collateral Agent may from time to time appoint to enter into any premises during business hours and on reasonable prior notice (or at such other time as may be reasonably requested by Collateral Agent or such person) where the Collateral may be kept to view its condition;

 
(c)

the Debtor will conduct its business in a proper and business-like manner and will keep proper books of account and records of its business, and upon request will furnish access to its books and records at all reasonable times, and will give to Collateral Agent any information which it may reasonably require relating to the Debtor's business;

 
(d)

the Debtor will punctually pay all rents, taxes, rates and assessments lawfully assessed or imposed upon any property or income of the Debtor and will punctually pay all debts and obligations to labourers, workers, employees, contractors, subcontractors, suppliers of materials and other creditors which, when unpaid, might under applicable federal, provincial, state or other laws have priority over the Security Interest granted by this Agreement;

 
(e)

the Debtor will punctually make all payments and perform all of its obligations under any contracts under which any material Collateral is held or to which it is subject;

 
(f)

the Debtor will immediately give notice to Collateral Agent of:

 

 

(i)

any change in the location of the Collateral from that specified in Section 5(i) hereof;

 

 

 

(ii)

the details of any material acquisition or disposition of Collateral (whether authorized by Collateral Agent or not), including any additions to or deletions from the listing of serial numbers and vehicle identification numbers specified in Schedule "A" hereto;

 

 

 
4
 

 

 

(iii)

any material loss of or damage to Collateral;

 

   

 

(iv)

the details of any claims or litigation that could adversely affect the Debtor or the Collateral in any material way;

 

 

 

(v)

any change of its name or of any trade or business name used by it;

 

 

 

(vi)

any change of its place of business, or if it has more than one place of business, of its chief executive office; and

 

 

 

(vii)

any merger or amalgamation of the Debtor with any person;

 

and the Debtor agrees not to effect or permit any of the changes referred to in clauses (i), (ii), (v), (vi) or (vii) above unless all filings have been made and all other actions have been taken that are required or desirable (as determined by Collateral Agent) in order for Collateral Agent to continue to have a valid and perfected Security Interest in respect of the Collateral at all times following such change;

 

(g)

the Debtor will insure and keep insured the Collateral (or, in the case of any real property, the buildings located on and constituting part of the Collateral) against loss or damage by fire, lightning, explosion, smoke, impact by aircraft or land vehicle, riot, windstorm, hail and other insurable hazards to the extent of its full insurable value, and will maintain all such other insurance as Collateral Agent may reasonably require. The loss under the policies of insurance will be made payable to Collateral Agent as its interest may appear and will be written by an insurance company approved by Collateral Agent on terms reasonably satisfactory to Collateral Agent, and the Debtor will provide Collateral Agent with copies of the same. The Debtor will pay all premiums and other sums of money necessary for such purposes as they become due and will deliver to Collateral Agent proof of said payment, and will not allow anything to be done by which the policies may become vitiated. Upon the happening of any loss or damage the Debtor will furnish at its expense all necessary proofs and will do all necessary acts to enable Collateral Agent to obtain payment of the insurance monies;

 
(h)

the Debtor will observe the requirements of any regulatory or governmental authority with respect to the Collateral, except to the extent any failure to do so would not reasonably be expected to have a material adverse effect on its business, operations or financial condition or affect the priority of the Security Interest created hereunder or affect the rights and remedies of Collateral Agent hereunder;

 
(i)

the Debtor will not remove any of the Collateral from any location specified in Section 5(i) hereof without the prior written consent of Collateral Agent;

 
(j)

Collateral Agent may pay or satisfy any Encumbrance created in respect of any Collateral, or any sum necessary to be paid to clear title to such Collateral, and the Debtor agrees to repay the same on demand, plus interest thereon at a rate equal to the highest rate of interest payable by the Debtor on any portion of the Indebtedness;

 
(k)

Collateral Agent and the Debtor may from time to time agree in writing as to affirmative and negative covenants and restrictions to be performed and observed by the Debtor in respect of provision of financial information, payment of dividends, capital expenditures, incurring of additional obligations, reduction of capital, distribution of assets, amalgamation, repayment of loans, lending of money, sale and other disposition of assets and/or such other matters as Collateral Agent and the Debtor may think fit, and the Debtor agrees to perform and observe such affirmative and negative covenants and restrictions to the same extent and effect as if the same were fully set forth in this Agreement; and

 

 
5
 

 

(l)

the Debtor will not permit the Collateral constituting personal property to become affixed to real or other personal property (unless the Debtor owns such real or other personal property, and Collateral Agent has a Security Interest therein having the same priority as in respect of the Collateral becoming so affixed) without the prior consent of Collateral Agent in writing, and will obtain and deliver to Collateral Agent such waivers regarding the Collateral as Collateral Agent may reasonably request from any owner, landlord or mortgagee of the premises where the Collateral is or may be located.

 

7.

DEFAULT

 

 

The happening of any of the following shall constitute default (a " Default ") under this Agreement:

 

(a)

the Debtor fails to pay, when due, the Indebtedness or any part thereof;

 
(b)

the Debtor fails, when due, to perform any obligation (other than payment of the Indebtedness or any part thereof) to Collateral Agent, and such failure, if capable of being cured, is not cured within 5 days of the date the Debtor first knew or should have known of such failure;

 
(c)

the Debtor fails when due to perform any obligation to any other person, and such failure, if capable of being cured, is not cured within 7 days of the date the Debtor first knew or should have known of such failure;

 
(d)

any representation or warranty made in this Agreement or any other document or report furnished to Collateral Agent in respect of the Debtor or the Collateral is false or misleading in any material respect;

 
(e)

the Debtor ceases or demonstrates an intention to cease to carry on business or disposes or purports to dispose of all or a substantial part of its assets;

 
(f)

any of the licenses, permits or approvals granted by any government or any government authority and material to the business of the Debtor is withdrawn, cancelled or significantly altered;

 
(g)

an order is made or a resolution is passed for winding up the Debtor, or a petition is filed for the winding up, dissolution, liquidation or amalgamation of the Debtor or any arrangement or composition of its debts;

 
(h)

the Debtor becomes insolvent or makes an assignment or proposal or files a notice of intention to make a proposal for the benefit of its creditors, or a bankruptcy petition or receiving order is filed or made against the Debtor, or a Receiver (as hereinafter defined), trustee, custodian or other similar official of the Debtor or any part of its property is appointed, or the Debtor commits or demonstrates an intention to commit any act of bankruptcy, or the Debtor otherwise becomes subject to the provisions of the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangements Act (Canada) or any other act for the benefit of its creditors;

 

 
6
 

 

(i)

any execution, sequestration, extent or distress or any other like process is levied or enforced against any property of the Debtor, or a secured party takes possession of any of the Debtor's property;

 
(j)

any material adverse change occurs in the financial position of the Debtor; or

 
(k)

Collateral Agent considers that it is insecure, or that the prospect of payment or performance by the Debtor of the Indebtedness is or is about to be impaired, or that the Collateral is or is about to be placed in jeopardy.

 

8.

REMEDIES

 

 

On Default:

 

(a)

Collateral Agent may seize or otherwise take possession of the Collateral or any part thereof and sell the same by public or private sale at such price and upon such terms as Collateral Agent in its sole discretion may determine, and the proceeds of such sale less all costs and expenses of Collateral Agent (including costs as between a solicitor and its own client on a full indemnity basis) shall be applied on the Indebtedness and the surplus, if any, shall be disposed of according to law;

 
(b)

Collateral Agent may apply to a court of competent jurisdiction for the sale or foreclosure of any or all of the Collateral;

 
(c)

Collateral Agent may enforce this Agreement by any method provided for in this Agreement, under the PPSA or under any other applicable statute or otherwise as permitted by law, and may dispose of the Collateral by any method permitted by law, including disposal by lease or deferred payment;

 
(d)

Collateral Agent may apply to a court for the appointment of a Receiver (as hereinafter defined), or may appoint by instrument any person or persons, to be a Receiver of any Collateral, and may remove any person so appointed and appoint another in his stead. The term "Receiver" as used in this Agreement includes a receiver, a manager and a receiver-manager;

 
(e)

any Receiver will have the power:

 

 

(i)

to take possession of any or all of the Collateral and for that purpose to take any proceedings, in the name of the Debtor or otherwise;

 

 

 

(ii)

to carry on or concur in carrying on the business of the Debtor and enter on, occupy and use (without charge by the Debtor) any of the premises, buildings, plant and undertaking of, or occupied or used by, the Debtor;

 

 

 

(iii)

to sell or lease any Collateral;

 

 

 

(iv)

to make any arrangement or compromise which he may think expedient in the interest of Collateral Agent;

 

 

 

(v)

to pay all liabilities and expenses connected with the Collateral, including the cost of insurance and payment of taxes or other charges incurred in obtaining, maintaining possession of and preserving the Collateral, and the same shall be added to the Indebtedness and secured by the Collateral;

 

 
7
 

 

 

(vi)

to hold as additional security any increase or profits resulting from the Collateral;

 

 

 

(vii)

to exercise all rights that Collateral Agent has under this Agreement or otherwise at law;

 

 

 

(viii)

with the consent of Collateral Agent in writing, to borrow money for the purpose of carrying on the business of the Debtor or for the maintenance of the Collateral or any part thereof or for other purposes approved by Collateral Agent, and any amount so borrowed together with interest thereon shall form a charge upon the Collateral in priority to the Security Interest created by this Agreement;

 

 

 

(ix)

to enter into and to occupy any premises in which the Debtor has any interest; and

 

 

 

(x)

to exercise any of the powers and rights of an Entitlement Holder in respect of any Security Entitlement of the Debtor;

 

(f)

the Debtor hereby appoints each Receiver appointed by Collateral Agent to be its attorney to effect the sale or lease of any Collateral and any deed, lease, agreement or other document signed by a Receiver under his seal pursuant hereto will have the same effect as if it were under the seal of the Debtor;

 
(g)

any Receiver will be deemed (for purposes relating to responsibility for the Receiver's acts or omissions) to be the agent of the Debtor and not of Collateral Agent, and the Debtor will be solely responsible for his acts or defaults and for his remuneration and expenses, and Collateral Agent will not be in any way responsible for any misconduct or negligence on the part of any Receiver;

 
(h)

neither Collateral Agent nor any civil enforcement agent, sheriff, Receiver or person having similar responsibilities will be required to take any steps to preserve any rights against other parties pursuant to any Collateral, including without limitation, any Investment Property, Chattel Paper or Instrument constituting the Collateral or any part of it. Furthermore, Collateral Agent shall have no obligation to take any steps to preserve prior encumbrances on any Collateral whether or not in Collateral Agent 's possession and shall not be liable or accountable for failure to do so;

 
(i)

neither Collateral Agent nor any civil enforcement agent, sheriff, Receiver or person having similar responsibilities is required to keep Collateral identifiable; and

 
(j)

Collateral Agent may use the Collateral in any manner as it in its sole discretion deems advisable.

 

Collateral Agent may exercise any or all of the foregoing rights and remedies (or any other rights and remedies available to Collateral Agent) without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except as required by applicable law) to or on the Debtor or any other person, and the Debtor by this Agreement waives each such demand, presentment, protest, advertisement and notice to the extent permitted by applicable law. None of the rights and remedies contained herein or otherwise available to Collateral Agent will be exclusive of or dependent on or merge in any other right or remedy, and one or more of such rights and remedies may be exercised independently or in combination from time to time.

 

 
8
 

 

9.

COLLECTION OF DEBTS

 

Before or after Default, Collateral Agent may notify all or any Account Debtor of the Security Interest and may also direct such Account Debtor to make all payments on any Collateral to Collateral Agent. The Debtor acknowledges that any payments on or other proceeds of Collateral received by the Debtor from Account Debtor after Default under this Agreement and whether before or after notification of this Security Interest to Account Debtor shall be received and held by the Debtor in trust for Collateral Agent and shall be turned over to Collateral Agent on request. The Debtor shall furnish Collateral Agent with all information which may assist in the collection of all Accounts and any other monies or debts due to the Debtor.

 
10.

INVESTMENT PROPERTY

 

If the Collateral at any time includes Investment Property, the Debtor irrevocably authorizes and appoints Collateral Agent as its attorney and agent to transfer the same or any part thereof into its own name or that of its nominee(s) so that Collateral Agent or its nominee(s) may appear on record as the sole owner thereof; provided that, until Default, Collateral Agent shall deliver promptly to the Debtor all notices or other communications received by it or its nominee(s) as such registered owner and, upon demand and receipt of payment of any necessary expenses thereof, shall issue to the Debtor or its order a proxy to vote and take all action with respect to such Investment Property. After Default, the Debtor waives all rights to receive any notices or communications received by Collateral Agent or its nominee(s) as such registered owner and agrees that no proxy issued by Collateral Agent to the Debtor or to its order as aforesaid shall thereafter be effective. These powers are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created by this Agreement are released.

 
11.

COLLATERAL IN POSSESSION OF COLLATERAL AGENT

 

The Debtor agrees with Collateral Agent that, with respect to any Collateral held in the possession of Collateral Agent pursuant to this Agreement (" Retained Collateral "):

 

(a)

Collateral Agent's responsibility with regard to the Retained Collateral shall be limited to exercising the same degree of care which it gives to similar property held by Collateral Agent at the branch where the Retained Collateral is held. Collateral Agent shall not in any event be obligated to protect the Retained Collateral from depreciating or becoming worthless, or to present, protest, collect, enforce or realize on any of the Retained Collateral;

 
(b)

Collateral Agent shall not be obliged to collect or see to the payment of revenue, income, interest or dividends upon any of the Retained Collateral, but all such revenue, income, interest or dividends, if any, when received by the Debtor, shall immediately be paid to Collateral Agent. Collateral Agent, in its sole discretion, may hold such monies as Collateral or appropriate it to any portion of the Indebtedness;

 
(c)

the Debtor irrevocably appoints Collateral Agent as its attorney and agent, with full powers of substitution, to sell, transfer, surrender, redeem, endorse or otherwise deal with any of the Retained Collateral as Collateral Agent, in its sole discretion, may see fit. These powers are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created by this Agreement are released; and

 
(d)

Collateral Agent shall have all rights and powers, but shall not be required to exercise any right or benefit which the holder or owner of the Retained Collateral may at any time have in connection with the Retained Collateral.

 

 
9
 

 

12.

ACCELERATION

 

In the event of Default, Collateral Agent, in its sole discretion, may without demand or notice of any kind, declare all or any of the Indebtedness which is not by its terms payable on demand, to be immediately due and payable. The provisions of this section are not intended in any way to affect any rights of Collateral Agent with respect to any Indebtedness which may now or hereafter be payable on demand.

 
13.

NOTICE

 

Any notice or demand required or permitted to be made or given by Collateral Agent to the Debtor may be validly served by delivering the same or by mailing the same prepaid registered mail, addressed to the Debtor at the last known address of the Debtor or of any officer or director thereof, as shown on the records of Collateral Agent, and in the case of mailing, such notice or demand shall be deemed to have been received by the Debtor on the third business day following the date of mailing.

 
14.

COSTS AND EXPENSES

 

The Debtor agrees to pay all reasonable costs, charges and expenses incurred by Collateral Agent or any Receiver appointed by it (including without restricting the generality of the foregoing, legal costs as between a solicitor and his own client on a full indemnity basis and also an allowance for the time, work and expenses of Collateral Agent or any agent, solicitor, or servant of Collateral Agent for any purpose herein provided at such rates as Collateral Agent may establish in its sole discretion from time to time) in preparing, registering or enforcing this Agreement, taking custody of, preserving, maintaining, repairing, processing, preparing for disposing of the Collateral and in enforcing or collecting the Indebtedness, and all such costs, charges and expenses shall be a first charge on the proceeds of realization, collection or disposition of the Collateral and shall be secured hereby.

 
15.

REGISTRATION

 

The Debtor will ensure that this Agreement and all such supplementary and corrective instruments and any additional mortgage and security documents, and all documents, caveats, cautions, security notices and financing statements in respect thereof, are promptly filed and refiled, registered and re-registered and deposited and re-deposited, in such manner, in such offices and places, and at such times and as often as may be required by applicable law or as may be necessary or desirable to perfect and preserve the Security Interests as a first priority mortgage, charge and security interest and the rights conferred or intended to be conferred upon Collateral Agent by the Security Interests and will cause to be furnished promptly to Collateral Agent evidence satisfactory to Collateral Agent of such filing, registering and depositing.

 
16.

MISCELLANEOUS

 

(a)

Without limiting any other right of Collateral Agent, whenever the debts and liabilities of the Debtor to Collateral Agent are immediately due and payable, or Collateral Agent has the right to declare the debts and liabilities to be immediately due and payable, whether or not it has so declared, Collateral Agent may, in its sole discretion, set-off against the debts and liabilities any and all monies then owed to the Debtor by Collateral Agent in any capacity, whether due or not due, and Collateral Agent shall be deemed to have exercised such right of set-off immediately at the time of making its decision to do so even though any charge therefor is made or entered on Collateral Agent 's records subsequent thereto.

 
(b)

Collateral Agent may grant extensions of time and other indulgences, take and give up security, accept compositions, compound, compromise, settle, grant releases and discharges and otherwise deal with the Debtor, sureties and others and with Collateral and other security as Collateral Agent may see fit without prejudice to the liability of the Debtor or to Collateral Agent's right to hold and realize the Security Interest. Collateral Agent may demand, collect and sue on the Collateral in either the Debtor's or Collateral Agent 's name, at Collateral Agent's option, and may endorse the Debtor's name on any and all cheques, commercial paper and any other instruments pertaining to or constituting Collateral and for this purpose, the Debtor irrevocably authorizes and appoints Collateral Agent as its attorney and agent, with full power of substitution. These powers are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created by this Agreement are released.

 

 
10
 

 

(c)

Upon the Debtor's failure to perform any of its obligations under this Agreement, Collateral Agent may, but shall not be required to, perform any such obligations, and the Debtor will pay to Collateral Agent, upon demand, an amount equal to the expense incurred by Collateral Agent in so doing with interest thereon from the date such expense is incurred at a rate equal to the highest rate of interest payable by the Debtor on any portion of the Indebtedness.

 
(d)

This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. The Debtor may not assign this Agreement, or any of its rights or obligations under this Agreement, without the prior written consent of Collateral Agent. In any action brought by an assignee of this Agreement or the Security Interest created hereunder or any part thereof, the Debtor shall not assert against the assignee any claim or defense which the Debtor now has or hereafter may have against Collateral Agent.

 
(e)

If more than one person executes this Agreement as the Debtor:

 

 

(i)

the obligations of such persons hereunder shall be joint and several;

 

 

 

(ii)

the Security Interests shall secure the Indebtedness of each Debtor, whether or not any other Debtor or any other person is also liable therefor; and

 

 

 

(iii)

the Collateral shall include the interest of any Debtor in the property, assets and undertaking constituting Collateral owned or otherwise held by such Debtor, whether or not any other Debtor also has an interest therein.

 

(f)

The Debtor acknowledges and agrees that in the event it amalgamates with any other corporation or corporations it is the intention of the parties hereto that the term "Debtor" when used herein shall apply to each of the amalgamating corporations and to the amalgamated corporation, such that the Security Interests granted hereby:

 

 

(i)

shall extend and attach to "Collateral" (as that term is herein defined) owned by each of the amalgamating corporations and the amalgamated corporation at the time of amalgamation and to any "Collateral" thereafter owned or acquired by the amalgamated corporation; and

 

 

 

(ii)

shall secure the "Indebtedness" (as that term is herein defined) of each of the amalgamating corporations and the amalgamated corporation to Collateral Agent at the time of amalgamation and any "Indebtedness" of the amalgamated corporation to Collateral Agent thereafter arising.

 

(g)

This Agreement is in addition to and not in substitution for any other security or securities now or hereafter held by Collateral Agent and all such other securities shall remain in full force and effect. Collateral Agent will not be obliged to exhaust its recourse against the Debtor or any other person or against any other security it may hold in respect of the Indebtedness before realizing upon or otherwise dealing with the Collateral in such manner as Collateral Agent may consider desirable.

 

 
11
 

 

(h)

The Debtor further agrees to execute and deliver to Collateral Agent such further assurances and conveyances and supplemental deeds and instruments as may be necessary to properly carry out the intention of this Agreement, as determined by COLLATERAL AGENT, or as may be required by Collateral Agent from time to time, in each case acting reasonably.

 
(i)

After Default, Collateral Agent may from time to time apply and re-apply, notwithstanding any previous application, in any such manner as it, in its sole discretion, sees fit, any monies received by it from the Debtor or as a result of any enforcement or recovery proceedings, in or toward payment of any portion of the Indebtedness. The Debtor will remain liable for any Indebtedness that is outstanding following realization of all or any part of the Collateral and the application of the proceeds thereof.

 
(j)

For the purpose of assisting Collateral Agent in assessing the creditworthiness of the Debtor or the ownership or description of any of the Collateral, and for the purpose of collecting all or any portion of the Indebtedness owing by the Debtor to Collateral Agent, the Debtor consents to the disclosure and release to Collateral Agent of personal information, including without limitation, motor vehicle information from Ontario Registries (or any other provincial government department having jurisdiction in that area). This consent is effective from the effective date of this Agreement and shall remain in effect until all Indebtedness is fully satisfied.

 

17.

APPOINTMENT OF COLLATERAL AGENT

 

 

The Purchasers hereby appoint Jesse Kaplan to act as their agent (“ Collateral Agent ”) for purposes of exercising any and all rights and remedies of the secured parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest (as defined in the SPA), at which time a majority in interest shall appoint a new collateral agent. The Collateral Agent shall have the rights, responsibilities and immunities set forth in Schedule “D” hereto.

 

18.

INTERPRETATION

 

(a)

If a portion of this Agreement is wholly or partially invalid, then this Agreement will be interpreted as if the invalid portion had not been a part of it.

 
(b)

Where the context so requires, the singular number shall be read as if the plural were expressed and the provisions hereof shall be read with all grammatical changes necessary depending upon the person referred to being male, female or body corporate.

 

19.

GOVERNING LAW

 

This Agreement will be interpreted in accordance with the laws of the Province of Ontario, and the Debtor irrevocably agrees that any suit or proceeding with respect to any matters arising out of or in connection with this Agreement may be brought in the courts of such Province or in any court of competent jurisdiction, as Collateral Agent may elect, and the Debtor agrees to attorn to the same.

 
20.

COPY OF AGREEMENT

The Debtor hereby acknowledges receipt of a copy of this Agreement, and waives any right it may have to receive a Financing Statement, Financing Change Statement or Verification Statement relating to it.

 

 
12
 

 

IN WITNESS WHEREOF the Debtor has executed this Agreement this 7th day of June, 2015 .

 

WITNESS:

 

 

 

2304101 ONTARIO INC.

 

 

       

 

By: /s/ Scott L. Woodrow

 

 

 

Name:

Scott L. Woodrow

 

 

 

Title:

Chief Executive Officer and President

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

Full Address of Debtor:

 

 

 

 

 

 

 

 

Full List of all prior names by which Debtor has been known (whether by way of name change, amalgamation or otherwise):

 

 

 

 

 

 

 

 

 
13
 

 

OMNIBUS PURCHASER SIGNATURE PAGE TO
2304101 ONTARIO INC.
GENERAL SECURITY AGREEMENT

 

The undersigned, in its capacity as a Purchaser, hereby executes and delivers the Security Agreement to which this signature page is attached and agrees to be bound by the General Security Agreement on the date set forth on the first page of the General Security Agreement. This counterpart signature page, together with all counterparts of the General Security Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the General Security Agreement.

 

 

 

[Print Name of Purchaser]

 

 

 

 

[Signature]

Name: _____________________________________________________________

Title: ______________________________________________________________

 

Address: _______________________________________________________________________________________

 

_______________________________________________________________________________________________

 

_______________________________________________________________________________________________

 

Fax No.: __________________________________________

 

Email: ____________________________________________

 

Taxpayer ID# (if applicable): _________________________

 

 
14
 

 

COLLATERAL AGENT SIGNATURE PAGE TO
2304101 ONTARIO INC.
GENERAL SECURITY AGREEMENT

 

The undersigned, in its capacity as the Collateral Agent, hereby executes and delivers the Security Agreement to which this signature page is attached and agrees to be bound by the General Security Agreement on the date set forth on the first page of the General Security Agreement. This counterpart signature page, together with all counterparts of the General Security Agreement and signature pages of the other parties named therein, shall constitute one and the same instrument in accordance with the terms of the General Security Agreement.

 

 

 

[Print Name of Collateral Agent]

 

 

 

 

[Signature]

 

Name:_____________________________________________________________

 

Title: ______________________________________________________________

 

Address: ____________________________________________________________________

 

____________________________________________________________________________

 

____________________________________________________________________________

 

Fax No.: _____________________________________

 

Email: ______________________________________

 

Taxpayer ID# (if applicable): ____________________

 

 
15
 

 

SCHEDULE A

 

Description of Collateral:

 

x

(a)

All of the Debtor's present and after-acquired Personal Property.

 

Select appropriate box or boxes. If no box is selected, the Debtor shall be deemed to have selected box (b).     

x

(b)

All of the Debtor's present and after-acquired property, assets and undertaking, including without limitation all present and after-acquired Personal Property, and all present and after-acquired real, immoveable and leasehold property.

 

x

(c)

All of the Debtor's present and after-acquired Personal Property except :

 

x

(d)

All of the Debtor’s equipment of whatever kind and wherever situated including, without limitation, all machinery, tools, apparatus, plant, furniture, fixtures and vehicles of whatever nature.

 

x

(e)

All Accounts, Instruments, debts and Chattel Paper which are now due, owing or accruing due, or which may hereafter become due, owing or accruing due, to the Debtor, together with all records (whether in writing or not) and other documents of any kind which in any way evidence or relate to any or all of the Accounts, Instruments, debts or Chattel Paper.

 

x

(f)

All of the Debtor's present and after-acquired Inventory, wherever located.

 

x

(g)

The following described Personal Property of the Debtor:

 
 

x

(h)

All harvested and unharvested crops whether growing or matured, and whether grain, roots, seeds, leaves or otherwise howsoever, and any interest of the Debtor therein, wherever located.

 

x

(i)  

All of the Debtor’s, male or female, born or unborn, branded or unbranded, of whatever age or stage of growth, wherever located.

 

Listing of Serial Numbers:

 

The registration mark (for aircraft only) and the serial numbers or vehicle identification numbers of any motor vehicles, trailers, mobile homes, manufactured homes, boats, outboard motors for boats, or aircraft (other than those held as Inventory for sale or lease by the Debtor) constituting Collateral are as follows:

 

Make

 

Model

 

Year of

Manufacture

 

Serial Number (and Registration
Mark for aircraft only)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Locations of Collateral:

 

The Collateral is located at the following location(s):

 

 
16
 

 

SCHEDULE B

PERMITTED ENCUMBRANCES

 

NONE

 

 

 

 

 

 

 
17
 

 

SCHEDULE C  

PURCHASERS

 

 

 

 

 

 
18
 

 

SCHEDULE D TO

GENERAL SECURITY AGREEMENT

 

THE COLLATERAL AGENT

 

1. Appointment .The Purchasers (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the General Security Agreement to which this Schedule A is attached (the “ Agreement ”), by their acceptance of the benefits of the Agreement, hereby designate [REQUIRES COMPLETION] (“ Collateral Agent ”) as the Collateral Agent to act as specified herein and in the Agreement. Each Purchaser shall be deemed irrevocably to authorize the Collateral Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the SPA) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Collateral Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Collateral Agent may perform any of its duties hereunder by or through its agents or employees.

 

2. Nature of Duties . The Collateral Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Collateral Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Collateral Agent shall be mechanical and administrative in nature; the Collateral Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of Debtor or any Purchaser; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Collateral Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

 

3. Lack of Reliance on the Collateral Agent . Independently and without reliance upon the Collateral Agent, each Purchaser, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Purchaser’s investment in the Debtor, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Collateral Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Purchaser with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Collateral Agent shall not be responsible to the Debtor or any Purchaser for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtor or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtor, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

 

4. Certain Rights of the Collateral Agent . The Collateral Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Collateral Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of Secured Parties holding a majority in principal amount of Notes (based on then-outstanding principal amounts of Notes at the time of any such determination); if such instructions are not provided despite the Collateral Agent’s request therefor, the Collateral Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Collateral Agent; and the Collateral Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Purchaser shall have any right of action whatsoever against the Collateral Agent as a result of the Collateral Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtor shall have no right to question or challenge the authority of, or the instructions given to, the Collateral Agent pursuant to the foregoing and (b) the Collateral Agent shall not be required to take any action which the Collateral Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

 

 
19
 

 

5. Reliance . The Collateral Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Collateral Agent shall have no obligation whatsoever to any Purchaser to assure that the Collateral exists or is owned by the Debtor or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

 

6. Indemnification . To the extent that the Collateral Agent is not reimbursed and indemnified by the Debtor, the Secured Parties will jointly and severally reimburse and indemnify the Collateral Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Collateral Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Collateral Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Collateral Agent, the Collateral Agent may require each Purchaser to deposit with it sufficient sums as it determines in good faith is necessary to protect the Collateral Agent for costs and expenses associated with taking such action.

 

7. Resignation by the Collateral Agent .  

 

(a) The Collateral Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 5 days’ prior written notice (as provided in the Agreement) to the Debtor and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Collateral Agent pursuant to clauses (b) and (c) below.

 

(b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Collateral Agent hereunder.

 

(c) If a successor Collateral Agent shall not have been so appointed within said 5-day period, the Collateral Agent shall then appoint a successor Collateral Agent who shall serve as Collateral Agent until such time, if any, as the Secured Parties appoint a successor Collateral Agent as provided above. If a successor Collateral Agent has not been appointed within such 5-day period, the Collateral Agent may petition any court of competent jurisdiction or may interplead the Debtor and the Secured Parties in a proceeding for the appointment of a successor Collateral Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtor on demand.

 

8. Rights with respect to Collateral . Each Purchaser agrees with all other Secured Parties and the Collateral Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Collateral Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Purchaser has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Collateral Agent’s resignation or removal hereunder as Collateral Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent.

 

 

20 


 

EXHIBIT 10.7

 

ESCROW AGREEMENT

 

This Agreement is dated as of the 7th day of July, 2015 among 2304101 Ontario Inc. (operating as Behavioural Neurological Applications and Solutions), an Ontario corporation (the “ Company ”), the parties identified on Schedule A hereto (each a “ Purchasers ”, and collectively “ Purchasers ”), and Grushko & Mittman, P.C. (the “ Escrow Agent ”):

 

W I T N E S S E T H :

 

WHEREAS, the Company and Purchasers have entered into a Securities Purchase Agreement calling for the sale by the Company to the Purchasers of secured Notes and Warrants for an aggregate of up to $770,000 ; and

 

WHEREAS, the parties hereto require the Company to deliver the Notes against payment therefor, with such Notes, Warrants and the Escrowed Funds to be delivered to the Escrow Agent, along with the other documents, instruments and payments hereinafter described, to be held in escrow and released by the Escrow Agent in accordance with the terms and conditions of this Agreement; and

 

WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the terms and conditions of this Agreement;

 

NOW THEREFORE, the parties agree as follows:

 

ARTICLE I

 

INTERPRETATION

 

1.1. Definitions . Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given to such terms in the Securities Purchase Agreement. Whenever used in this Agreement, the following terms shall have the following respective meanings:

 

§ Agreement ” means this Agreement and all amendments made hereto and thereto by written agreement between the parties;

 

§ Collateral Agent ” shall mean Jesse Kaplan;

 

§ Company Lockup Agreements ” means the Lockup Agreements referred to in Section 2.2(a)(vi) of the Securities Purchase Agreement;

 

§ " Escrowed Payment " means an aggregate cash payment of up to $770,000;

 

§ Initial Closing Date ” shall have the meaning set forth in Section 1 of the Securities Purchase Agreement;

 

§ Legal Opinion ” means the original signed legal opinion referred to in Section 2.2(a)(vii) of the Securities Purchase Agreement;

 

§ Notes ” means the notes due twenty-four (24) months after the Initial Closing Date, in the form of Exhibit A to the Securities Purchase Agreement;

 

 
1
 

 

§ Registration Rights Agreement ” means the Registration Rights Agreeement (and the exhibits thereto) entered into or to be entered into by the parties in reference to the sale and purchase of Notes and Warrants;

 

§ Security Agreement ” means the General Security Agreement entered into or to be entered into by the parties in reference to the security interest granted pursuant to the Notes;

 

§ Securities Purchase Agreement " means the Securities Purchase Agreement (and the exhibits thereto) entered into or to be entered into by the parties in reference to the sale and purchase of Notes;

 

§ “Warrants” shall have the meaning set forth in Section 1.1 of the Securities Purchase Agreement;

 

§ Collectively, the Company executed Securities Purchase Agreement, Company Lockup Agreements, Legal Opinion, Registration Rights Agreement, Security Agreement, Notes, and Warrants are referred to as " Company Documents "; and

 

§ Collectively, the Escrowed Payment, and the Purchasers executed Securities Purchase Agreement, Registration Rights Agreement and Security Agreement are referred to as " Purchasers Documents ".

 

1.2. Entire Agreement . This Agreement along with the Company Documents and the Purchasers Documents to which the Purchasers and the Company or Subsidiary are a party constitute the entire agreement between the parties hereto pertaining to the Company Documents and Purchasers Documents and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. There are no warranties, representations and other agreements made by the parties in connection with the subject matter hereof, except as specifically set forth in this Agreement, the Company Documents and the Purchasers Documents.

 

1.3. Extended Meanings . In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders. The word “person” includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative.

 

1.4. Waivers and Amendments . This Agreement may be amended, modified, superseded, cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by all parties, or, in the case of a waiver, by the party waiving compliance. Except as expressly stated herein, no delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any right, power or privilege hereunder preclude any other or future exercise of any other right, power or privilege hereunder.

 

1.5. Headings . The division of this Agreement into articles, sections, subsections and paragraphs and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

 

 
2
 

 

1.6. Law Governing this Agreement . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction . Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party (which shall be the party which receives an award most closely resembling the remedy or action sought) shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

 

1.7. Specific Enforcement, Consent to Jurisdiction . The Company and Purchasers acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injuction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 1.6 hereof, each of the Company and Purchasers hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

 

ARTICLE II

 

DELIVERIES TO THE ESCROW AGENT

 

2.1. Company Deliveries . On or before the Initial Closing Date, the Company shall execute and deliver the Company Documents to the Escrow Agent.

 

2.2. Purchasers Deliveries. On or before the Initial Closing Date, Purchasers shall execute and deliver the Purchasers Documents, shall cause the Collateral Agent to execute and deliver the Security Agreement, and shall deliver the Escrowed Payment in cash, to the Escrow Agent. The Escrowed Payment will be delivered pursuant to the following wire transfer instructions:

 

Citibank, N.A.

1155 6 th Avenue

New York, NY 10036

ABA Number: 0210-00089

For Credit to: Grushko & Mittman, IOLA Trust Account

Account Number: 9997242837

 

2.3. Intention to Create Escrow Over Company Documents and Purchasers Documents . The Purchasers and Company intend that the Company Documents and Purchasers Documents shall be held in escrow by the Escrow Agent pursuant to this Agreement for their benefit as set forth herein.

 

2.4. Escrow Agent to Deliver Company Documents and Purchasers Documents . The Escrow Agent shall hold and release the Company Documents and Purchasers Documents only in accordance with the terms and conditions of this Agreement.

 

 
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ARTICLE III

 

RELEASE OF COMPANY DOCUMENTS AND PURCHASERS DOCUMENTS

 

3.1. Release of Escrow . Subject to the provisions of Section 4.2, the Escrow Agent shall release the Company Documents and Purchasers Documents as follows:

 

(a) On the Initial Closing Date, the Escrow Agent will simultaneously release the Company Documents to the Purchasers and release the Purchaser Documents to the Company, except that: (i) the Legal Fees will be released directly to the Purchasers’ attorneys; and (ii) the Security Agreement will be released to the Collateral Agent . The Escrow Agent may request any written representations, certifications and documents in Escrow Agent’s absolute discretion before releasing any funds from escrow.

 

(b) Notwithstanding the above, upon receipt by the Escrow Agent of joint written instructions (“ Joint Instructions ”) signed by the Company and the Purchasers, it shall deliver the Company Documents and Purchasers Documents in accordance with the terms of the Joint Instructions.

 

(c) Anything herein to the contrary notwithstanding, upon receipt by the Escrow Agent of a final and non-appealable judgment, order, decree or award of a court of competent jurisdiction (a “ Court Order ”), the Escrow Agent shall deliver the Company Documents and Purchasers Documents in accordance with the Court Order. Any Court Order shall be accompanied by an opinion of counsel for the party presenting the Court Order to the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect that the court issuing the Court Order has competent jurisdiction and that the Court Order is final and non-appealable.

 

3.2. The Initial Closing may take place on or before July 8, 2015. If an Initial Closing does not take place on or before July 8, 2015, the Escrow Agent will promptly return the applicable Company Documents to the Company and return the Purchasers Documents to the Purchasers.

 

3.3. Acknowledgement of Company and Purchasers; Disputes . The Company and the Purchasers acknowledge that the only terms and conditions upon which the Company Documents and Purchasers Documents are to be released are set forth in Sections 3 and 4 of this Agreement. The Company and the Purchasers reaffirm their agreement to abide by the terms and conditions of this Agreement with respect to the release of the Company Documents and Purchasers Documents. Any dispute with respect to the release of the Company Documents and Purchasers Documents shall be resolved pursuant to Section 4.2 or by agreement between the Company and Purchasers.

 

ARTICLE IV

 

CONCERNING THE ESCROW AGENT

 

4.1. Duties and Responsibilities of the Escrow Agent . The Escrow Agent’s duties and responsibilities shall be subject to the following terms and conditions:

 

(a) The Purchasers and Company acknowledge and agree that the Escrow Agent (i) shall not be responsible for or bound by, and shall not be required to inquire into whether either the Purchasers or Company is entitled to receipt of the Company Documents and Purchasers Documents pursuant to any other agreement or otherwise; (ii) shall be obligated only for the performance of such duties as are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be protected in acting or refraining from acting upon any written notice, instruction, instrument, statement, request or document furnished to it hereunder and believed by the Escrow Agent in good faith to be genuine and to have been signed or presented by the proper person or party, without being required to determine the authenticity or correctness of any fact stated therein or the propriety or validity or the service thereof; (iv) may assume that any person believed by the Escrow Agent in good faith to be authorized to give notice or make any statement or execute any document in connection with the provisions hereof is so authorized; (v) shall not be under any duty to give the property held by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its own similar property; and (vi) may consult counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and complete authorization and protection in respect of any action taken, suffered or omitted by Escrow Agent hereunder in good faith and in accordance with the opinion of such counsel.

 

 
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(b) The Purchasers and Company acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and that the Escrow Agent shall not be liable for any action taken by Escrow Agent in good faith and believed by Escrow Agent to be authorized or within the rights or powers conferred upon Escrow Agent by this Agreement. The Purchasers and Company, jointly and severally, agree to indemnify and hold harmless the Escrow Agent and any of Escrow Agent’s partners, employees, agents and representatives for any action taken or omitted to be taken by Escrow Agent or any of them hereunder, including the fees of outside counsel and other costs and expenses of defending itself against any claim or liability under this Agreement, except in the case of gross negligence or willful misconduct on Escrow Agent’s part committed in its capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a duty only to the Purchasers and Company under this Agreement and to no other person.

 

(c) The Purchasers and Company jointly and severally agree to reimburse the Escrow Agent for reasonable outside counsel fees, to the extent authorized hereunder and incurred in connection with the performance of its duties and responsibilities hereunder.

 

(d) The Escrow Agent may at any time resign as Escrow Agent hereunder by giving five (5) days prior written notice of resignation to the Purchasers and the Company. Prior to the effective date of the resignation as specified in such notice, the Purchasers and Company will issue to the Escrow Agent a Joint Instruction authorizing delivery of the Company Documents and Purchasers Documents to a substitute Escrow Agent selected by the Purchasers and Company. If no successor Escrow Agent is named by the Purchasers and Company, the Escrow Agent may apply to a court of competent jurisdiction in the State of New York for appointment of a successor Escrow Agent, and to deposit the Company Documents and Purchasers Documents with the clerk of any such court.

 

(e) The Escrow Agent does not have and will not have any interest in the Company Documents and Purchasers Documents, but is serving only as escrow agent, having only possession thereof. The Escrow Agent shall not be liable for any loss resulting from the making or retention of any investment in accordance with this Escrow Agreement.

 

(f) This Agreement sets forth exclusively the duties of the Escrow Agent with respect to any and all matters pertinent thereto and no implied duties or obligations shall be read into this Agreement.

 

(g) The Escrow Agent shall be permitted to act as counsel for the Purchasers in any dispute as to the disposition of the Company Documents and Purchasers Documents, in any other dispute between the Purchasers and Company, whether or not the Escrow Agent is then holding the Company Documents and Purchasers Documents and continues to act as the Escrow Agent hereunder.

 

(h) The provisions of this Section 4.1 shall survive the resignation of the Escrow Agent or the termination of this Agreement.

 

 
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4.2. Dispute Resolution: Judgments . Resolution of disputes arising under this Agreement shall be subject to the following terms and conditions:

 

(a) If any dispute shall arise with respect to the delivery, ownership, right of possession or disposition of the Company Documents and Purchasers Documents, or if the Escrow Agent shall in good faith be uncertain as to its duties or rights hereunder, the Escrow Agent shall be authorized, without liability to anyone, to (i) refrain from taking any action other than to continue to hold the Company Documents and Purchasers Documents pending receipt of a Joint Instruction from the Purchasers and Company, or (ii) deposit the Company Documents and Purchasers Documents with any court of competent jurisdiction in the State of New York, in which event the Escrow Agent shall give written notice thereof to the Purchasers and the Company and shall thereupon be relieved and discharged from all further obligations pursuant to this Agreement. The Escrow Agent may, but shall be under no duty to, institute or defend any legal proceedings which relate to the Company Documents and Purchasers Documents. The Escrow Agent shall have the right to retain counsel if it becomes involved in any disagreement, dispute or litigation on account of this Agreement or otherwise determines that it is necessary to consult counsel.

 

(b) The Escrow Agent is hereby expressly authorized to comply with and obey any Court Order. In case the Escrow Agent obeys or complies with a Court Order, the Escrow Agent shall not be liable to the Purchasers and Company or to any other person, firm, corporation or entity by reason of such compliance.

 

ARTICLE V

 

GENERAL MATTERS

 

5.1. Termination . This escrow shall terminate upon the release of all of the Company Documents and Purchasers Documents or at any time upon the agreement in writing of the Purchasers and Company.

 

5.2. Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

 

(a)

If to the Company, to:

 

2304101 Ontario Inc.  

100 College Street, Suite 213

Toronto, ON M5G 1L5

Attn: Scott Woodrow, Chief Executive Officer

Fax: (800) 887-5525

 

 
6
 

 

With a copy by fax only to (which shall not constitute notice):

 

David Lubin & Associates, PLLC  

108 S. Franklin Avenue, Suite 10  

Valley Stream, NY 11580  

Attn: David Lubin, Esq.  

F ax: (516) 887-8250

 

(b)

If to the Purchasers: to: the addresses and fax numbers listed on Schedule A hereto.

 

With a copy by facsimile only to (which shall not constitute notice):

 

Grushko & Mittman, P.C.  

515 Rockaway Avenue  

Valley Stream, New York 11581  

Attn: Edward M. Grushko, Esq.

Fax: (212) 697-3575

 

(c)

If to the Escrow Agent, to:

 

Grushko & Mittman, P.C.  

515 Rockaway Avenue  

Valley Stream, New York 11581  

Fax: (212) 697-3575

 

or to such other address as any of them shall give to the others by notice made pursuant to this Section 5.2.

 

5.3. Interest . The Escrowed Payment shall not be held in an interest bearing account nor will interest be payable in connection therewith. In the event the Escrowed Payment is deposited in an interest bearing account, any interest earned on the Escrowed Payment will be paid in the New York State Client Protection Fund or for a similar purpose.

 

 
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5.4. Assignment; Binding Agreement . Neither this Agreement nor any right or obligation hereunder shall be assignable by any party without the prior written consent of the other parties hereto. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns.

 

5.5. Invalidity . In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law.

 

5.6. Counterparts/Execution . This Agreement may be executed in any number of counterparts and by different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile transmission and delivered by facsimile transmission.

 

5.7. Agreement . Each of the undersigned states that he has read the foregoing Escrow Agreement and understands and agrees to it.

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 
8
 

 

IN WITNESS WHEREOF , the undersigned have executed and delivered this Escrow Agreement, as of the date first written above.

 

 

COMPANY:

2304101 ONTARIO INC.

An Ontario corporation

 

       
By: /s/ Scott L. Woodrow

 

 

Name:   

Scott L. Woodrow

 

 

Title:   

CEO

 

 

 

 

 

 

ESCROW AGENT :  

 

 

 

 

 

 

 

 

 

 

 

GRUSHKO & MITTMAN, P.C.

 

 

 

 

 

 

“PURCHASERS”:  

 

 

 

 

 

 

 

[_____________________________________]

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

9


  EXHIBIT 10.8

 

LOCK-UP AGREEMENT

 

July 7, 2015

 

Ladies and Gentlemen:

 

The undersigned is a beneficial owner of shares of capital stock, or securities convertible into or exercisable or exchangeable for the capital stock as more fully described on Schedule A hereto (each, a Company Security ) of 2304101 Ontario Inc. (operating as Behavioural Neurological Applications and Solutions), an Ontario corporation (the Company ). Except as set forth on Schedule A hereto, the undersigned does not control, or own, beneficially or otherwise nor have the right to acquire any other Company Security. Beneficial ownership includes but shall not be limited to the manner same is calculated pursuant to Section 13(d) under the Securities Exchange Act of 1934 (the Exchange Act ). The undersigned understands that the Company and the initial purchasers of the Company s convertible Notes and Warrants pursuant to a Securities Purchase Agreement and other Transaction Documents (as defined in the Securities Purchase Agreement) as identified therein ( Initial Purchasers ) are entering into a financing transaction pursuant to the Securities Purchase Agreement (the Transaction ) and that the Initial Purchasers will proceed with the Transaction in reliance on this Letter Agreement to be signed by the undersigned. Upper case terms employed herein shall have the same meanings as in the Transaction Documents.

 

1. In recognition of the benefit that the Transaction will confer upon the undersigned, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees, for the benefit of the Initial Purchasers, that, during the period beginning on the date hereof (the Distribution Date ) and ending twelve (12) months after the occurrence of a Going Public Event (as defined in the Securities Purchase Agreement (the Lockup Period ), the undersigned will not, directly or indirectly, (i) offer, sell, offer to sell, contract to sell, hedge, pledge, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or sell (or announce any offer, sale, offer of sale, contract of sale, hedge, pledge, sale of any option or contract to purchase, purchase of any option or contract of sale, grant of any option, right or warrant to purchase or other sale or disposition), or otherwise transfer or dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future), any Company Securities, beneficially owned, within the meaning of Rule 13d under the Exchange Act, by the undersigned on the date hereof or hereafter acquired or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Company Security, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of any Company Security (each of the foregoing, a Prohibited Sale ) except as described on Schedule A hereto.

 

2. Notwithstanding the foregoing, the undersigned (and any transferee of the undersigned) may transfer any shares of a Company Security (i) to any of the Initial Purchasers, provided such transfers are waived or made pro rata to each of the Investors willing to acquire such Company Security (in proportion to the amount of Common Stock (on an as converted basis) then owned by the Initial Purchasers), (ii) as a bona fide gift or gifts, provided that prior to such transfer the donee or donees thereof agree in writing to be bound by the restrictions set forth herein, (iii) to any trust, partnership, corporation or other entity formed for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, provided that prior to such transfer a duly authorized officer, representative or trustee of such transferee agrees in writing to be bound by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, (iv) to non-profit organizations qualified as charitable organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, provided that prior to such transfer the done or donees agree to be bound by the restrictions set forth herein, or (v) if such transfer occurs by operation of law, such as rules of descent and distribution, statutes governing the effects of a merger or a qualified domestic order, provided that prior to such transfer the transferee executes an agreement stating that the transferee is receiving and holding any Company Security subject to the provisions of this agreement. For purposes hereof, immediate family shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.

 

 
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3. This Letter Agreement will become a binding agreement among the undersigned as of the date hereof. In the event that no closing of the Transaction occurs, this Letter Agreement shall be null and void. This Letter Agreement (and the agreements reflected herein) may be terminated by the mutual agreement of a Majority in Interest of the Initial Purchasers and the undersigned, and if not sooner terminated, will terminate upon the expiration date of the Lockup Period.

 

a. At any time, and from time to time, after the signing of this Agreement, Holder will execute such additional instruments and take such action as may be reasonably requested by the Purchasers to carry out the intent and purposes of this Agreement.

 

b. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. The Holder and Company hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The parties executing this Agreement and other agreements referred to herein or delivered in connection herewith agree to submit to the in personam jurisdiction of such courts and hereby irrevocably waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Notices hereunder shall be given in the same manner as set forth in the Securities Purchase Agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document 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 Agreement 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 other manner permitted by law. Holder irrevocably appoints the Company its true and lawful agent for service of process upon whom all processes of law and notices may be served and given in the manner described above; and such service and notice shall be deemed valid personal service and notice upon Holder with the same force and validity as if served upon Holder.

 

c. The restrictions on transfer described in this Agreement are in addition to and cumulative with any other restrictions on transfer otherwise agreed to by the Holder or to which the Holder is subject to by applicable law.

 

d. This Agreement shall be binding upon Holder, its legal representatives, successors and assigns.

 

e. This Agreement may be signed and delivered by facsimile or electronically and such facsimile or electronically signed and delivered Agreement shall be enforceable. Signature pages from separate identical counterparts may be combined with the same effect as if the parties signing such signature page had signed the same counterpart.

 

f. This Letter Agreement may be modified or waived only by a separate writing signed by each of the parties hereto expressly so modifying or waiving such agreement.

 

 
2
 

   

IN WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed this Agreement as of the day and year first above written.

 

HOLDER:

 

 

 

    (Signature of Holder)  

 

 

 

(Print Name of Holder)

 

 

 

 

 

 

(Address)

 

 

 

 

 

 

 

(Address)

 

 

 

 

 

 

 

(Fax)

 

 

 

 

 

 

 

(Email)

 

 

 
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SCHEDULE A

 

Number of Shares of Common Stock directly owned by Holder: · Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

4


EXHIBIT 10.9

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 

 


EXHIBIT 10.10

 

 

October 1, 2013

 

B e havioural Neurological Application and Solutions

100 College St. Suite 213

Toronto, ON M5G 1L5

 

Re: Service Agreement for the “Cognitive Restructuring in ADHD: Functional

T r aining” Project

 

Dear Mr. Woodrow:

 

W e are very excited to be working with your organization on this groundbreaking project. Understandably all the details of our relationship cannot be effectively articulated at this point, however it is in all party’s interest to commence the development of the project immediately. The purpose of this Memorandum of Understanding (“MOU”) is to outline certain terms of the proposed collaboration and mutual intent of Sticky Brain Studios Inc. (“SBS”) and Behavioural Neurological Application and Solutions (“BNAS”) in developing and producing an interactive digital media property for use by BNAS and their clients (the “Game”). This MOU will set the groundwork for a long form agreement which will further detail the relationship between the parties and the terms for the eventual commercialization of the Game.

 

W HEREAS BNAS is working with experts from Sick Kids on determining the clinical efficacy of the Game for children identified with attention deficit hyperactivity disorder;

 

AND WHEREAS SBS is in the business of developing interactive digital media properties and has experience designing engaging games and environments for children in the target demographic of 7-11 years of age;

 

AND WHEREAS BNAS wishes to engage SBS and SBS wishes to be engaged by BNAS to provide development and production services for the Game, and further provide services to BNAS for the commercialization of the Game in the future;

 

NOW THEREFORE for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged by the signatories to this MOU, SBS and BNAS agree to commence developing and producing the Game based on the terms contained herein, in anticipation of executing a long form agreement to comprehensively address the development, production, and commercialization of the Game:

 

1.

Independent Contractor. BNAS engages SBS as Independent Contractor to conduct development and production activities related to the Game. As Independent Contractor, SBS is responsible for all statutory deductions and payments required. BNAS shall not be liable to SBS for any damages, liabilities, penalties, interest or costs caused to SBS for failure to make any statutory deductions and payments. SBS agrees it will not acquire any right, title or interest in the Game, all of such right title and interest being owned by BNAS.

 

 
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2.

Specifications. The Game is proposed to be initially developed for the PC platform to be used initially by Sick Kids, in relation to conducting a clinical efficacy study and further research. The Game shall be initially developed in accordance with the Concept outlined in the Project Description attached hereto as Schedule “C” (the “Concept”) and further elaborated and developed through consultations between SBS and BNAS in accordance with the Development Schedule.

3.

Confidentiality. The Parties have entered into a Mutual Confidential Disclosure Agreement dated as of July 11, 2013 (the “Confidentiality Agreement”), the terms of which are incorporated in this MOU and shall survive any termination of this MOU or a long form Agreement which replaces it, unless the parties expressly agree in writing to release any or all terms of the Confidentiality Agreement.

4.

Development and Production. SBS has prepared a Development and Production Schedule for the Game, attached hereto as Schedule “A” (the “Development Schedule”). The Development Schedule will form the timeline for the services rendered by SBS, however, it is anticipated that the Development Schedule shall be amended from time to time.

5.

Budget. The Budget attached hereto as Schedule “B” (the “Budget”) represents the anticipated cost of development and production of the Game. The Budget further includes the Drawdown Schedule detailing the payments required to be made by BNAS to SBS in relation to the Game. It is anticipated that the Budget shall be amended from time to time.

6.

Consultation Process. In order to accomplish the goal of creating a unique gaming and educational experience, the Development and Production of the Game is intended to involve extensive consultation between SBS and BNAS.The timing of demonstrable elements of the game is to be coordinated together with Sick Kids to align with objectives of a clinical trial. Each step in the design, development, and production will include significant involvement from experts and professionals provided by BNAS a. Given the level of involvement of non-game development professionals, it is expected that the scope of services provided by SBS will be organic and may change significantly. For this reason, it is anticipated that the Development Schedule will likely require revision at certain points based on the feedback, requests, and instructions received from BNAS and Sick Kids. All parties will cooperate with efforts to minimize revisions to the Development Schedule and Budget, but acknowledge that revisions will likely be required and will be facilitated.

 

 
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7.

Compensation. SBS shall be compensated in accordance with the Drawdown Schedule contained in the Budget as the same may be revised from time to time based on increased or decreased needs or instructions from BNAS and/or Sick Kids.

8.

Commercialization Services. It is anticipated that the Game will eventually be commercialized by BNAS. Such commercialization is expected to require further contributions by SBS both technical and strategic in nature. Given that the details of the commercialization are not apparent, the compensation for the same shall be negotiated in good faith between the parties in the long form agreement to follow. It is expected that the compensation for such contributions be provided at service rates with quotes whenever possible.

9.

BNAS to Own the Game. Subject to the terms of the long form agreement, the Game, its Source Code and any related Intellectual Property will exclusively be owned by BNAS. A license to use certain routines and/or generic code which is created by developers and not proprietary to the Game shall be granted to SBS and/or the developers of the Game, subject to agreement between SBS and BNAS in the long form agreement.

10.

Software Support. BNAS shall provide End Users with Tier 1 support (as defined in the long form agreement) with respect to the use and maintenance of the Game, and SBS shall provide BNAS with Tier 2 support (as defined in the long form agreement) with respect to the use and maintenance of the Game. The support obligations of both parties shall continue for the Term of This Agreement.

11.

Maintenance and Support Fees. In consideration for ongoing routine software support, as specified above, SBS shall be entitled to a maintenance fee at the rate of five percent (5%) of Net Sales with respect to the Game. Any significant redesign or structural changes to the software code are to be mutually agreed upon and further defined in the long form agreement.

12.

Multiple Versions. In accordance with the Specifications and Development Plan, it is understood by BNAS and SBS that multiple versions of the game may be commercialized.

13.

Additional Compensation. In the event that BNAS engages SBS to assist in the marketing and distribution of any version of the Game, BNAS agrees to pay SBS a royalty to be negotiated between the parties in good faith and the amount and form to be included in the long form agreement.

14.

Credit. SBS shall receive a credit in relation to the game as ``Strategic Partner``, or such other credit as the parties may agree to. The prominence and details of the credit shall be further outlined in the long form agreement to follow, in no event shall the prominence or other characteristics of the Credit accorded SBS be any less favourable than the Credit accorded to any other consultant or contributor involved in the Game.

 

 
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15.

Non-Exclusive Relationship. The relationship between the parties is non-exclusive, and, subject to the confidentiality undertakings of both parties, SBS may offer and/or provide its services to competing businesses with BNAS, and BNAS may engage and/or explore business opportunities with businesses in competition or providing similar services to SBS.

16.

Termination. If at any time BNAS wishes to terminate the relationship with SBS, BNAS shall be required to provide SBS with no less than TEN (10) business days written notice of such termination. In the event of termination by BNAS, BNAS shall retain the rights contemplated in this MOU in and to all deliverables provided by SBS to the date of termination, and SBS shall be entitled to payment of all compensation owed up to the date of termination, as well as the compensation scheduled for the drawdown immediately following the period in which the Termination occurs. For clarity, it is understood that concurrent with milestones contained in the Drawdown Schedule, work on the next milestone will have begun and expenses related to the same will have been incurred – in example, concurrent with Clinical Game testing, work on assets associated with the milestone “completion of Stage 2.1” will have commenced.

17.

Inability to Agree. In an effort to streamline the decision making process and expedite the resolution of any impasses, the parties agree to seek assistance form a respected senior member of the interactive digital community to arbitrate on any element of this MOU, the long form agreement, or the relationship between the parties contemplated herein which the parties cannot agree on. If the parties cannot agree on the arbitrator, each party will recommend no less than two candidates and one candidate from each party (decided on by the other party) will be selected to choose a third candidate who shall serve as the arbitrator for the issue(s) at hand. The parties shall bear the cost of the arbitrator equally.

18.

Miscellaneous. The parties have the power, authority and legal capacity to enter into this MOU and bind themselves to the terms contained herein. No Party shall be responsible for damages caused by such party delaying or failing to perform any of its obligations under this MOU when due to illness, equipment failure, inclement weather, fire, strike or other labour dispute, acts of terror, flood or other act of God, act of war or insurrection, lawful acts of public authorities, delays or defaults caused by common carriers, or other events beyond such party’s control which could not have been reasonably foreseen. The headings contained in this MOU are for ease of reference alone and shall not have any impact on the interpretation of the provisions or the intention of the parties. The parties hereto agree to indemnify and hold one another harmless for and from all losses, costs, liabilities, damages and reasonable expenses incurred as a result of or in relation to their respective breaches or alleged breaches of the terms of this MOU. BNAS agrees to indemnify and hold SBS harmless for and from all losses, costs, liabilities, damages and reasonable expenses incurred as a result of or in relation to the use of the Game by end users, and BNAS further agrees to maintain as necessary, insurance policies sufficient for the use of the Game made by BNAS, and shall name SBS as an additional insured under such policies. SBS’ services provided in accordance with the Agreement are exclusively for entertainment purposes. SBS makes no representation or warranty whatsoever of merchantability, fitness for a particular purpose, and all services and results are provided “as is” with solely the agreement to provide technical support as shall be outlined in the long form agreement to follow. SBS is in no way responsible for any claims or damages, relating to the use of the Game by any third parties, nor does SBS make any representations, warranties, or assume any responsibility for the content of the Game which relates to safety, health, or medical or other treatment. The provisions relating to confidentiality, rights, and this provision shall survive and not merge on any termination of this MOU. This MOU shall be irrevocably governed exclusively by the laws of the Province of Ontario and of Canada applicable in Ontario for contracts made and to be entirely performed within Ontario. Subject to the arbitration clause contained herein, the courts of the Province of Ontario and of Canada in Ontario shall irrevocably have exclusive jurisdiction in the event of any dispute arising under or relating to this MOU, and the parties hereto irrevocably attorn to the exclusive jurisdiction of these courts. This MOU may be executed in separate counterparts, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument.

 

 
4
 

 

19.

Long Form. The parties intend to replace this MOU at their earliest convenience with a comprehensive long form agreement, negotiated in good faith and consistent with the terms contained herein. Unless and until such a long-form agreement is entered into by the parties this MOU shall bind the parties in relation to the subject matter herein.

20.

Independent Legal Advice. The undersigned parties acknowledge being given the opportunity to seek independent legal advice on the content of this document and have either done so, or have waived this right upon their own and unhindered accord.

 

S incerely, S ticky Brain Studios Inc.

 

Agreed by:
Behavioural Neurological Applications and
S olutions

 

 

 

 

 

P er :  

 

Per:

 

Name: Sasha Boersma

 

Name:

 

Authorized signing Officer

 

Authorized signing Officer

 

Date: January 27, 2013

 

Date:February 19, 2014

 

 

 

5


EXHIBIT 10.11

 

 

 
1
 

 

 

 

 
2
 

 

 

 
3
 

 

 

 
4
 

 

 

 

 
5
 

 

 

 
6
 

 

 

 
7
 

 

 

 
8
 

 

 

 
9
 

 

 

 
10
 

 

 

 
11
 

 

 

 

 
12
 

 

 

 

13


EXHIBIT 10.12

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 

 

 


EXHIBIT 10.13  

 

 

 
 
 

 

 

 

 
 
 

 

 

 

 
 
 

 

 

 


EXHIBIT 10.14

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

  


EXHIBIT 10.15

 

STOCK OPTION AGREEMENT

 

THIS STOCK OPTION AGREEMENT (the " Agreement) is made as of the 31 51 day of December, 2013 (the " Effective Date" ).

 

BETWEEN:

 

SCOTT L. WOODROW  

(the "Optionee")

 

AND:

 

2304101 ONTARIO INC. o/a Behavioural Neurological Applications and Solutions, a corporation incorporated and existing under the laws of the Province of Ontario (the "Company")

 

A.

The Optionee has or will perform services for the Company.

 
B.

The Company desires to grant to the Optionee an option to purchase 32 Common Shares in the capital of the Company (the "Common Shares");

 

NOW THEREFORE in consideration of the sum of $1.00 given by the Optionee to the Company (the receipt and sufficiency of which is acknowledged by the Company) the parties hereto agree as follows:

 

1.

Subject to the terms and conditions of this Agreement, and as an incentive to the Optionee, the Company grants to the Optionee a non-assignable and non-transferable option (the "Option") to purchase, from time to time, a total of 32 Common Shares (the "Option Shares") at an exercise price of $1 per Option Share, exercisable in accordance with the vesting schedule provided in Section 3 of this Agreement.

 
2.

The Option shall, unless otherwise specified by the Board of Directors of the Company (the "Board of Directors"), expire on the tenth (10th) anniversary of the Effective Date (the " Date").

 
3.

The Option shall vest and become exercisable on December 31, 2013. Once an Option Share vests and becomes exercisable as set forth above, it shall remain exercisable until expiration or termination of the Option. Each Option may be exercised at any time from time to time, in whole or in part, for up to the total number of Option Shares that have vested as of such time.

 
4.

In order to exercise the Option, the Optionee shall, no later than 5:00 p.m. (EST) on the Expiry Date, give written notice to the Company of the Optionee's intention to exercise the Option in whole or in part, stating the number of Option Shares being acquired pursuant to such exercise, accompanied by cash or a cheque made payable to the Company, in an amount equal to the aggregate exercise price for the Option Shares being purchased pursuant to the exercise of the Option. Any exercise of Options shall be conditioned on the Optionee agreeing to become bound by the provisions of the Company's unanimous shareholders' agreement then in effect, if any, or in the alternative a stock restriction agreement in form and substance acceptable to the Company.

 
5.

Upon exercise of the Option and payment in full of the purchase price and any applicable tax withholdings, the Company shall cause to be issued and delivered to the Optionee within a reasonable period of time a copy of the certificate or certificates in the name of the Optionee representing the number of Common Shares the Optionee has purchased. The original share certificate or certificates shall be held in safekeeping by the Company.

 

 
- 1 -
 

 

6.

If:

 

(a)

The Optionee is a natural person and dies before the Expiry Date, then any Options held by the Optionee that are exercisable on the date of death shall continue to be exercisable by the executor or the administrator of the Optionee's estate until the earlier of: (A) the date which is ninety (90) days after the date of the Optionee's death; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee's death shall immediately expire and be cancelled on such date.

 

(b)

The Optionee is an officer, director or employee of the Company and is terminated without cause or voluntarily resigns from the Company, then the Option Shares that are exercisable at the termination date or resignation date, as applicable, shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such date; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee's termination or resignation, as applicable, shall immediately expire and be cancelled on such date.

 

(c)

The Optionee's service to the Company as an officer, director or employee is terminated by the Company for cause or for breach of fiduciary duty, then the Option, whether or not exercisable on the date of such termination, immediately expires and is cancelled on such date at a time determined by the Board of Directors, in its sole discretion.

 

(d)

If the Optionee is a consultant to the Company and

 

(i)

such Optionee's consulting agreement or arrangement terminates by reason of: (A) termination by the Company for any reason whatsoever other than for breach of the consulting agreement or arrangement (whether or not such termination is effected in compliance with any termination provisions contained in the Optionee's consulting agreement or arrangement), or (B) voluntary termination by the Optionee, then the Option Shares that are exercisable at the applicable termination date continue to be exercisable by the Optionee until the earlier of: (A) the date that is thirty (30) days from such termination date; and (B) the Expiry Date. Any part of the Option that is not exercisable at such Service Termination Date shall immediately expire and be cancelled on such date; and

 

 

(ii)

such Optionee's consulting agreement or arrangement is terminated by the Company for breach of the consulting agreement or arrangement then the Option, whether or not such Option is exercisable at such termination date, immediately expires and is cancelled on such termination date at a time determined by the Board of Directors, in its sole discretion.

 

(e)

If the Optionee's service to the Company terminates for any reason not referred to above (including retirement or disability), then any part of the Option that is exercisable at the applicable termination date shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such termination date; and (B) the Expiry Date. Any party of the Option that is not exercisable at such termination date shall immediately expire and be cancelled on such termination date.

 

7.

Neither the grant nor the exercise of an Option by the Optionee confers to the Optionee any right to expectation of employment by, or to continue in the employment of, the Company, or to be retained as a consultant by, or to be elected or appointed as a director of, the Company.

 
8.

If the Company determines that under the requirements of applicable taxation laws it is obliged to withhold for remittance to a taxing authority any amount upon exercise of an Option, the Company may, prior to and as a condition of issuing the Option Shares, require the Optionee exercising the Option to pay to the Company, in addition to and in the same manner as the exercise price for the Option Shares, such amount as the Company is obliged to remit to such taxing authority in respect of the exercise of the Option. Any such additional payment shall, in any event, be due no later than the date as of which any amount with respect to the Option exercised first becomes included in the gross income of the Optionee for tax purposes. The Company shall also be permitted, to the extent permitted by law, to deduct any such tax obligations from any payment of any kind otherwise due to the Optionee.

 

 
- 2 -
 

 

9.

The number and kind of Option Shares subject to the Option and the exercise price for such Option Shares shall be appropriately adjusted for any subdivision, re-division, stock split, consolidation, stock dividend, recapitalization, reorganization or any similar change affecting the Common Shares.

 
10.

In the event that the Company merges, amalgamates, consolidates, reorganizes or enters into a plan of arrangement with another corporation (the "Acquirer") (a "Coroorate Evenf') the Board of Directors may in its sole discretion, without any action or consent of the Optionee, provide for: (a) the continuation or assumption of the Option by the Acquirer; (b) the substitution of the Option for options and/or shares and/or other securities of the Acquirer; (c) the substitution of the Option with a cash incentive program of the Acquirer; (d) the acceleration of the vesting and the right to exercise the Option Shares, to a date prior to or on the date of the Corporate Event; (e) the expiration of the Option, including any vested Option Shares, to the extent not timely exercised by the date of the Corporate Event or such other date as may be designated by the Board of Directors; (f) the cancellation of all or any portion of the Option by a cash payment and/or other consideration receivable by the holders of Common Shares as a result of the Corporate Event, equal to the excess, if any, of the fair market value (as determined in good faith by the Board of Directors), on the date of the Corporate Event, of the Option Shares over the exercise price of the Option Shares subject to the Option or portion thereof being cancelled (provided, that, if the exercise price of the Option exceeds such fair market value, the Board of Directors shall have the ability to cancel such Options without any payment of consideration to the Optionee); or (g) such other actions or combinations of the foregoing actions as the Board of Directors deems fair and reasonable in the circumstances. Upon the occurrence of a Corporate Event, to the extent that an Acquirer has by appropriate action assumed the Company's obligations with respect to the Option, the rights of the Company under the Option and any related agreement shall inure to the benefit of the Acquirer and shall apply to the cash, securities or other property into which the Option Shares were converted or exchanged for pursuant to such Corporate Event in the same manner and to the same extent as they applied to such Option.

 
11.

This Agreement shall enure to the benefit of and be binding upon the parties hereto and upon the successors or assigns of the Company and upon the executors, administrators and legal personal representatives of the Optionee.

 
12.

This Agreement shall be governed, construed and enforced according to the laws of the Province of Ontario and the laws of Canada applicable therein and is subject to the exclusive jurisdiction of the courts of the Province of Ontario.

 
13.

Whenever the singular or masculine are used throughout this Agreement, the same shall be construed as being the plural or feminine or neuter where the context so requires, and vice versa.

 
14.

The parties agree to execute such further documents and assurances as may be required to effect the intent hereof.

 
15.

The Optionee and the Company may execute this Agreement in two or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one agreement, effective as of the date first above written.

 

[Signature page follows below.]

 

 
- 3 -
 

 

IN WITNESS WHEREOF the parties hereto have hereunto executed these presents as of the Effective Date.

 

2304101 ONTARIO INC.

 

 

 

 

By:

 

Name:

Scott L. Woodrow

 

Title:

President

 

 
       

 

 

 

Scott L. Woodrow

 

 

 

- 4 -


EXHIBIT 10.16

 

ST O C K OPTION AGREEMENT

 

TH I S STOCK OPTION AGREEMENT (the “ Agreement ) is made as of the 1st day of June, 2013 (the “ E ff ec ti v e Date ”).

 

BET W EEN:

 

NE I L CLOSNER  

(the " Optionee ")

 

AND:

 

230410 1 ONTARIO INC. o/a Behavioural Neurological Applications and Solutions, a corporation incorporated and existing under the laws of the Province of Ontario (the " Company ")

 

A.

The Optionee has or will perform services for the Company.

 
B.

The Company desires to grant to the Optionee an option to purchase 27 Common Shares in the capital of the Company (the “Common Shares”);

 

N O W THEREFORE in consideration of the sum of $1.00 given by the Optionee to the Company (the receipt and sufficiency of which is acknowledged by the Company) the parties hereto agree as follows:

 

1.

Subject to the terms and conditions of this Agreement, and as an incentive to the Optionee, the Company grants to the Optionee a non-assignable and non-transferable option (the “Option”) to purchase, from time to time, a total of 27 Common Shares (the “Option Shares”) at an exercise price of $1 per Option Share, exercisable in accordance with the vesting schedule provided in Section 3 of this Agreement.

 
2.

The Option shall, unless otherwise specified by the Board of Directors of the Company (the “Board of Directors”), expire on the tenth (10th) anniversary of the Effective Date (the “Expiry Date”).

 
3.

The Option shall vest and become exercisable on December 31, 2013. Once an Option Share vests and becomes exercisable as set forth above, it shall remain exercisable until expiration or termination of the Option. Each Option may be exercised at any time from time to time, in whole or in part, for up to the total number of Option Shares that have vested as of such time.

 
4.

In order to exercise the Option, the Optionee shall, no later than 5:00 p.m. (EST) on the Expiry Date, give written notice to the Company of the Optionee's intention to exercise the Option in whole or in part, stating the number of Option Shares being acquired pursuant to such exercise, accompanied by cash or a cheque made payable to the Company, in an amount equal to the aggregate exercise price for the Option Shares being purchased pursuant to the exercise of the Option. Any exercise of Options shall be conditioned on the Optionee agreeing to become bound by the provisions of the Company’s unanimous shareholders’ agreement then in effect, if any, or in the alternative a stock restriction agreement in form and substance acceptable to the Company.

 
5.

Upon exercise of the Option and payment in full of the purchase price and any applicable tax withholdings, the Company shall cause to be issued and delivered to the Optionee within a reasonable period of time a copy of the certificate or certificates in the name of the Optionee representing the number of Common Shares the Optionee has purchased. The original share certificate or certificates shall be held in safekeeping by the Company.

 

 
1
 

 

6.

If:

 

 

(a)

The Optionee is a natural person and dies before the Expiry Date, then any Options held by the Optionee that are exercisable on the date of death shall continue to be exercisable by the executor or the administrator of the Optionee’s estate until the earlier of: (A) the date which is ninety (90) days after the date of the Optionee’s death; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee‘s death shall immediately expire and be cancelled on such date.

 

 

 

(b)

The Optionee is an officer, director or employee of the Company and is terminated without cause or voluntarily resigns from the Company, then the Option Shares that are exercisable at the termination date or resignation date, as applicable, shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such date; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee‘s termination or resignation, as applicable, shall immediately expire and be cancelled on such date.

 

 

 

(c)

The Optionee’s service to the Company as an officer, director or employee is terminated by the Company for cause or for breach of fiduciary duty, then the Option, whether or not exercisable on the date of such termination, immediately expires and is cancelled on such date at a time determined by the Board of Directors, in its sole discretion.

 

 

 

(d)

If the Optionee is a consultant to the Company and

 

 

(i)

such Optionee’s consulting agreement or arrangement terminates by reason of: (A) termination by the Company for any reason whatsoever other than for breach of the consulting agreement or arrangement (whether or not such termination is effected in compliance with any termination provisions contained in the Optionee’s consulting agreement or arrangement), or (B) voluntary termination by the Optionee, then the Option Shares that are exercisable at the applicable termination date continue to be exercisable by the Optionee until the earlier of: (A) the date that is thirty (30) days from such termination date; and (B) the Expiry Date. Any part of the Option that is not exercisable at such Service Termination Date shall immediately expire and be cancelled on such date; and

 

 

 

 

 

(ii)

such Optionee’s consulting agreement or arrangement is terminated by the Company for breach of the consulting agreement or arrangement then the Option, whether or not such Option is exercisable at such termination date, immediately expires and is cancelled on such termination date at a time determined by the Board of Directors, in its sole discretion.

 

(e)

If the Optionee’s service to the Company terminates for any reason not referred to above (including retirement or disability), then any part of the Option that is exercisable at the applicable termination date shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such termination date; and (B) the Expiry Date. Any party of the Option that is not exercisable at such termination date shall immediately expire and be cancelled on such termination date.

 

7.

Neither the grant nor the exercise of an Option by the Optionee confers to the Optionee any right to expectation of employment by, or to continue in the employment of, the Company, or to be retained as a consultant by, or to be elected or appointed as a director of, the Company.

 
8.

If the Company determines that under the requirements of applicable taxation laws it is obliged to withhold for remittance to a taxing authority any amount upon exercise of an Option, the Company may, prior to and as a condition of issuing the Option Shares, require the Optionee exercising the Option to pay to the Company, in addition to and in the same manner as the exercise price for the Option Shares, such amount as the Company is obliged to remit to such taxing authority in respect of the exercise of the Option. Any such additional payment shall, in any event, be due no later than the date as of which any amount with respect to the Option exercised first becomes included in the gross income of the Optionee for tax purposes. The Company shall also be permitted, to the extent permitted by law, to deduct any such tax obligations from any payment of any kind otherwise due to the Optionee.

 

 
2
 

 

9.

The number and kind of Option Shares subject to the Option and the exercise price for such Option Shares shall be appropriately adjusted for any subdivision, re-division, stock split, consolidation, stock dividend, recapitalization, reorganization or any similar change affecting the Common Shares.

 
10.

In the event that the Company merges, amalgamates, consolidates, reorganizes or enters into a plan of arrangement with another corporation (the “Acquirer”) (a “Corporate Event”) the Board of Directors may in its sole discretion, without any action or consent of the Optionee, provide for: (a) the continuation or assumption of the Option by the Acquirer; (b) the substitution of the Option for options and/or shares and/or other securities of the Acquirer; (c) the substitution of the Option with a cash incentive program of the Acquirer; (d) the acceleration of the vesting and the right to exercise the Option Shares, to a date prior to or on the date of the Corporate Event; (e) the expiration of the Option, including any vested Option Shares, to the extent not timely exercised by the date of the Corporate Event or such other date as may be designated by the Board of Directors; (f) the cancellation of all or any portion of the Option by a cash payment and/or other consideration receivable by the holders of Common Shares as a result of the Corporate Event, equal to the excess, if any, of the fair market value (as determined in good faith by the Board of Directors), on the date of the Corporate Event, of the Option Shares over the exercise price of the Option Shares subject to the Option or portion thereof being cancelled (provided, that, if the exercise price of the Option exceeds such fair market value, the Board of Directors shall have the ability to cancel such Options without any payment of consideration to the Optionee); or (g) such other actions or combinations of the foregoing actions as the Board of Directors deems fair and reasonable in the circumstances. Upon the occurrence of a Corporate Event, to the extent that an Acquirer has by appropriate action assumed the Company’s obligations with respect to the Option, the rights of the Company under the Option and any related agreement shall inure to the benefit of the Acquirer and shall apply to the cash, securities or other property into which the Option Shares were converted or exchanged for pursuant to such Corporate Event in the same manner and to the same extent as they applied to such Option.

 
11.

This Agreement shall enure to the benefit of and be binding upon the parties hereto and upon the successors or assigns of the Company and upon the executors, administrators and legal personal representatives of the Optionee.

 
12.

This Agreement shall be governed, construed and enforced according to the laws of the Province of Ontario and the laws of Canada applicable therein and is subject to the exclusive jurisdiction of the courts of the Province of Ontario.

 
13.

Whenever the singular or masculine are used throughout this Agreement, the same shall be construed as being the plural or feminine or neuter where the context so requires, and vice versa.

 
14.

The parties agree to execute such further documents and assurances as may be required to effect the intent hereof.

 
15.

The Optionee and the Company may execute this Agreement in two or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one agreement, effective as of the date first above written.

 

[Signature page follows below.]

 

 
3
 

 

IN WITNESS WHEREOF the parties hereto have hereunto executed these presents as of the Effective Date.

 

230410 1 ONTARIO INC.

 

 

 

 

By:

 

Na m e :

Scott L. Woodrow

 

T itl e :

President

 

 

       

 

 

 

Ne i l Closner

 

 

 

 

4


 EXHIBIT 10.17

 

STOCK OPTION AGREEMENT

 

This Stock Option Agreement (the “ Agreement ) is made as of the 1 st day of June, 2012 (the “ Effective Date ”).

 

BETWEEN :

 

RUSSELL SCHACHAR  

(the " Optionee ")

 

AND :

 

2304101 ONTARIO INC. o/a Behavioural Neurological Applications and Solutions, a corporation incorporated and existing under the laws of the Province of Ontario (the " Company ")

 

A.

The Optionee has or will perform services for the Company.

 
B.

The Company desires to grant to the Optionee an option to purchase 23 Common Shares in the capital of the Company (the “Common Shares”);

 

NOW THEREFORE in consideration of the sum of $1.00 given by the Optionee to the Company (the receipt and sufficiency of which is acknowledged by the Company) the parties hereto agree as follows:

 

1.

Subject to the terms and conditions of this Agreement, and as an incentive to the Optionee, the Company grants to the Optionee a non-assignable and non-transferable option (the “Option”) to purchase, from time to time, a total of 23 Common Shares (the “Option Shares”), exercisable in accordance with the vesting schedule and price provided in Section 3 of this Agreement.

 
2.

The Option shall, unless otherwise specified by the Board of Directors of the Company (the “Board of Directors”), expire on the tenth (10th) anniversary of the Effective Date (the “Expiry Date”).

 
3.

The Option shall vest and become exercisable in the following installments:

 

(a)

13 of the Option Shares shall vest on June 1, 2014 and be exercisable at a price of 50% of the Fair Market Value (defined below) at the date of exercise.

 
(b)

6 of the Option Shares shall vest on June 1, 2015 and be exercisable at a price of 50% of the Fair Market Value at the date of exercise.

 
(c)

4 of the Option Shares shall vest on June 1, 2016 and be exercisable at a price of 50% of the Fair Market Value at the date of exercise.

 

Fair Market Value ” means the price of the shares as determined in good faith by the Company’s Board of Directors. If the Optionee challenges the fair market value of the Option Shares, the fair market value shall be determined by appraisal by an independent appraiser agreed upon by the parties. In the event such parties cannot agree on an independent appraiser, each shall select an independent appraiser who shall, together, select a third independent appraiser who shall conduct the appraisal.

 

Once an Option Share vests and becomes exercisable as set forth above, it shall remain exercisable until expiration or termination of the Option. Each Option may be exercised at any time from time to time, in whole or in part, for up to the total number of Option Shares that have vested as of such time.

 

 
1
 

 

4.

In order to exercise the Option, the Optionee shall, no later than 5:00 p.m. (EST) on the Expiry Date, give written notice to the Company of the Optionee's intention to exercise the Option in whole or in part, stating the number of Option Shares being acquired pursuant to such exercise, accompanied by cash or a cheque made payable to the Company, in an amount equal to the aggregate exercise price for the Option Shares being purchased pursuant to the exercise of the Option. Any exercise of Options shall be conditioned on the Optionee agreeing to become bound by the provisions of the Company’s unanimous shareholders’ agreement then in effect, if any, or in the alternative a stock restriction agreement in form and substance acceptable to the Company.

 
5.

Upon exercise of the Option and payment in full of the purchase price and any applicable tax withholdings, the Company shall cause to be issued and delivered to the Optionee within a reasonable period of time a copy of the certificate or certificates in the name of the Optionee representing the number of Common Shares the Optionee has purchased. The original share certificate or certificates shall be held in safekeeping by the Company.

 
6.

If:

 

(a)

The Optionee is a natural person and dies before the Expiry Date, then any Options held by the Optionee that are exercisable on the date of death shall continue to be exercisable by the executor or the administrator of the Optionee’s estate until the earlier of: (A) the date which is ninety (90) days after the date of the Optionee’s death; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee‘s death shall immediately expire and be cancelled on such date.

 
(b)

The Optionee is an officer, director or employee of the Company and is terminated without cause or voluntarily resigns from the Company, then the Option Shares that are exercisable at the termination date or resignation date, as applicable, shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such date; and (B) the Expiry Date. Any part of the Option that is not exercisable at the date of the Optionee‘s termination or resignation, as applicable, shall immediately expire and be cancelled on such date.

 
(c)

The Optionee’s service to the Company as an officer, director or employee is terminated by the Company for cause or for breach of fiduciary duty, then the Option, whether or not exercisable on the date of such termination, immediately expires and is cancelled on such date at a time determined by the Board of Directors, in its sole discretion.

 
(d)

If the Optionee is a consultant to the Company and

 

 

(i)

such Optionee’s consulting agreement or arrangement terminates by reason of: (A) termination by the Company for any reason whatsoever other than for breach of the consulting agreement or arrangement (whether or not such termination is effected in compliance with any termination provisions contained in the Optionee’s consulting agreement or arrangement), or (B) voluntary termination by the Optionee, then the Option Shares that are exercisable at the applicable termination date continue to be exercisable by the Optionee until the earlier of: (A) the date that is thirty (30) days from such termination date; and (B) the Expiry Date. Any part of the Option that is not exercisable at such Service Termination Date shall immediately expire and be cancelled on such date; and

 

 

 

(ii)

such Optionee’s consulting agreement or arrangement is terminated by the Company for breach of the consulting agreement or arrangement then the Option, whether or not such Option is exercisable at such termination date, immediately expires and is cancelled on such termination date at a time determined by the Board of Directors, in its sole discretion.

 

(e)

If the Optionee’s service to the Company terminates for any reason not referred to above (including retirement or disability), then any part of the Option that is exercisable at the applicable termination date shall continue to be exercisable by the Optionee until the earlier of: (A) the date which is thirty (30) days after such termination date; and (B) the Expiry Date. Any party of the Option that is not exercisable at such termination date shall immediately expire and be cancelled on such termination date.

 

 
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7.

Neither the grant nor the exercise of an Option by the Optionee confers to the Optionee any right to expectation of employment by, or to continue in the employment of, the Company, or to be retained as a consultant by, or to be elected or appointed as a director of, the Company.

 
8.

If the Company determines that under the requirements of applicable taxation laws it is obliged to withhold for remittance to a taxing authority any amount upon exercise of an Option, the Company may, prior to and as a condition of issuing the Option Shares, require the Optionee exercising the Option to pay to the Company, in addition to and in the same manner as the exercise price for the Option Shares, such amount as the Company is obliged to remit to such taxing authority in respect of the exercise of the Option. Any such additional payment shall, in any event, be due no later than the date as of which any amount with respect to the Option exercised first becomes included in the gross income of the Optionee for tax purposes. The Company shall also be permitted, to the extent permitted by law, to deduct any such tax obligations from any payment of any kind otherwise due to the Optionee.

 
9.

The number and kind of Option Shares subject to the Option and the exercise price for such Option Shares shall be appropriately adjusted for any subdivision, re-division, stock split, consolidation, stock dividend, recapitalization, reorganization or any similar change affecting the Common Shares.

 
10.

In the event that the Company merges, amalgamates, consolidates, reorganizes or enters into a plan of arrangement with another corporation (the “Acquirer”) (a “Corporate Event”) the Board of Directors may in its sole discretion, without any action or consent of the Optionee, provide for: (a) the continuation or assumption of the Option by the Acquirer; (b) the substitution of the Option for options and/or shares and/or other securities of the Acquirer; (c) the substitution of the Option with a cash incentive program of the Acquirer; (d) the acceleration of the vesting and the right to exercise the Option Shares, to a date prior to or on the date of the Corporate Event; (e) the expiration of the Option, including any vested Option Shares, to the extent not timely exercised by the date of the Corporate Event or such other date as may be designated by the Board of Directors; (f) the cancellation of all or any portion of the Option by a cash payment and/or other consideration receivable by the holders of Common Shares as a result of the Corporate Event, equal to the excess, if any, of the fair market value (as determined in good faith by the Board of Directors), on the date of the Corporate Event, of the Option Shares over the exercise price of the Option Shares subject to the Option or portion thereof being cancelled (provided, that, if the exercise price of the Option exceeds such fair market value, the Board of Directors shall have the ability to cancel such Options without any payment of consideration to the Optionee); or (g) such other actions or combinations of the foregoing actions as the Board of Directors deems fair and reasonable in the circumstances. Upon the occurrence of a Corporate Event, to the extent that an Acquirer has by appropriate action assumed the Company’s obligations with respect to the Option, the rights of the Company under the Option and any related agreement shall inure to the benefit of the Acquirer and shall apply to the cash, securities or other property into which the Option Shares were converted or exchanged for pursuant to such Corporate Event in the same manner and to the same extent as they applied to such Option.

 
11.

This Agreement shall enure to the benefit of and be binding upon the parties hereto and upon the successors or assigns of the Company and upon the executors, administrators and legal personal representatives of the Optionee.

 
12.

This Agreement shall be governed, construed and enforced according to the laws of the Province of Ontario and the laws of Canada applicable therein and is subject to the exclusive jurisdiction of the courts of the Province of Ontario.

 

13.

Whenever the singular or masculine are used throughout this Agreement, the same shall be construed as being the plural or feminine or neuter where the context so requires, and vice versa.

 
14.

The parties agree to execute such further documents and assurances as may be required to effect the intent hereof.

 
15.

The Optionee and the Company may execute this Agreement in two or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one agreement, effective as of the date first above written.

 

[Signature page follows below.]

 

 
3
 

 

IN WITNESS WHEREOF the parties hereto have hereunto executed these presents as of the Effective Date.

 

2304101 ONTARIO INC.

 

 

 

By:

/s/ Scott L. Woodrow

 

Name:

Scott L. Woodrow

 

Title:

President

 

 

/s/ Russell Schachar

 

Russell Schachar

 

 

 

 

4


EXHIBIT 10.18

 

SOFTWARE LICENSE AGREEMENT

 

THIS SOFTWARE LICENSE AGREEMENT (the “ Agreement ”) is made as of December 9, 2014 (the “ Effective Date ”) by and between Pear Therapeutics, Inc. (“ Pear ”), a Delaware corporation having its principal place of business at 55 Temple Place, Floor 3, Boston MA 02111, and Behavioural Neurological Applications and Solutions Inc. (“ Licensor ”), having his principal place of business at 100 College Street, Suite 213, Toronto, ON M5G 1L5.

 

WHEREAS Licensor owns and operates a suite of software applications called Megateam, which are software solutions for treating mental health conditions including ADHD (i.e., the Applications);

 

WHEREAS, Licensor licenses the Applications in the form of a software development kit (“ SDK ”). The SDK is a customized version of the Applications, which includes clinical data tables, clinical data, sample user interface modules, the Application and application program interfaces (“ API ”) to permit third party developers to build bridges or interfaces to communicate with and import and export data to and from the Applications;

 

WHEREAS Pear desires to obtain a license to the Licensor Products in order to allow Pear to embed a customized version of the Licensor Products into its own software and content offerings (i.e., the Pear Application) in order to create Integrated Products for use by healthcare professionals and patients worldwide, subject to the terms and conditions set forth in this Agreement; and

 

WHEREAS Licensor is willing to enter into an agreement with Pear whereby Licensor will provide Pear with a license to the Licensor Products in order for Pear to create Integrated Products and license such Integrated Products to Pear’s Users, as well as to provide related services to Pear, including customization of the Applications, support and maintenance services, development services, training, and other professional services, on the terms set forth in this Agreement.

 

NOW, THEREFORE, the parties agree as follows:

 

1. DEFINITIONS.

 

Capitalized terms used but not defined in the body of this Agreement will be as defined in Exhibit A . The meanings given to terms in this Agreement are equally applicable to both the singular and the plural forms of the terms as the context may require.

 

2. LICENSE.

 

2.1 Grant of Licenses . During the License Term and subject to the terms of this Agreement, Licensor hereby grants Pear a worldwide, non-transferable (except as permitted in the Agreement) right and license for Pear to do the following:

 

2.1.1 Create Combination Products : to combine and package the Licensor Products with pharmaceutical drugs, medical foods, and/or food supplements to be marketed as a single product offering as a Combination Product;

 

2.1.2 Commercialize Combination Products: to commercialize and distribute, by way of sublicense to Users, theCombination Product in object code format only, which shall include: (a) the right to use the Content portion of the Licensor Products in Combination Products; and (b) as part of Stand-alone Offerings;

 

 
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2.1.3 Create Integrated Products: to use the source code to the SDK, including the APIs to adopt, modify,utilize, incorporate, embed and/or enhance the Licensor Products for the purpose of creating Integrated Products;

   

2.1.4 Commercialize Integrated Products: to license, sublicense and distribute to Users the Licensor Products inobject code format only as part of and included in any Integrated Products created by Pear, as part of a comprehensive product offering which may include, without limitation, compliance software, medical support, and data outcomes monitoring, as created by Pear;

 

2.1.5 Branding: to create the branding of Integrated Productswith marks of Pear’s choosing, provided thatLicensor is clearly identified as creator of the Applications and Content (e.g., “powered by Licensor” or comparable ingredient branding agreed upon by the parties);

 

2.1.6 Reseller: to distribute, license, sublicense and distribute to Users the Licensor Products in object codeformat only on a stand-alone basis, including permitting Users to access and use the Content;

 

2.1.7 Sub Distribution: Pear’s license rightsset out in subsections 2.1.2, 2.1.4 and 2.1.6 include the right for Pearto distribute Licensor Products to its Users directly or indirectly through Pear’s distributors, OEMs and resellers; and

 

2.1.8 Clinical Studies: to use the Licensor Products and the Integrated Products in clinical validation studies.

 

The license right granted above to Pear by Licensor will be exclusive (including as to Licensor) with respect to the right granted in Subsection 2.1.2(a) above (i.e., with respect to use of the Licensor Products in connection with the creation of Combination Products), and non-exclusive with respect to all other rights granted to Pear in the Licensor Products under Section 2.1. In addition, all of the foregoing rights granted under Section 2.1 will be permissive but not obligatory; meaning that (unless otherwise expressly set forth in the Agreement to the contrary) Pear will not be under any obligation to use the Licensor Products and/or the Content in any manner whatsoever unless it so chooses.

 

2.2 Restrictions . Except as expressly permitted in this Agreement, Pear will not (and will not permit third parties to):

 

(a) (except as necessary to exercise the rights set forth in Section 2.1, above) distribute, rent, or otherwise transfer any rights in the Licensor Products;

 

(b) except as necessary in the creation of Integrated Products, or pursuant to Section 3.17, modify the Applications. In addition, changes to the Integrated Products that involve further modifications of any customized version of the Applications provided by Licensor will be subject to mutual agreement of the parties, including around the reasonable costs involved to make any such changes;

 

(c) except as permitted by applicable law, reverse engineer, decrypt, decompile, or disassemble the Licensor Products; or

 

(d) use the Licensor Products in any manner or for any purpose not authorized or contemplated by this

 

Agreement.

 

2.3 Limitations on License . Notwithstanding the foregoing, if Pear does not secure the rights to sell Acceptable Drugs in conjunction with the Combination Products, the license granted pursuant to Section 2.1.2(a) will revert to a non-exclusive license.

 

 
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3. RESPONSIBILITIES OF THE PARTIES.

 

3.1 Responsibilities of Licensor . Licensor will have primary responsibility for performing the following tasks and providing the following services:

     

3.1.1 Delivery . Licensor will deliver the Licensor Products in the manner set forth in Exhibit B . Unless otherwise specified in Exhibit B , or in any amendment hereto, Licensor will deliver all Licensed Products electronically to the location(s) designated by Pear. Suppler will deliver patches, updates, and upgrades to the Licensed Products in accordance with the terms set forth in a separate agreement .

 

3.1.2 Integration . Licensor will work with Pear (for a mutually agreed upon duration of at least 60 days), to integrate the Licensor Products (i.e., the customized version of the Applications into the Integrated Product); both parties will work in good faith to insure that the integration will not materially impact the core operation of the Applications. If, during the foregoing mutually agreed upon integration period, the Licensor Products do not perform in accordance with the applicable specifications therefor, or Pear is unable to integrate the Licensor Products into the Integrated Products, Pear may return the Licensor Products and Licensor will refund to Pear all amounts paid for the such Licensor Products.

 

3.1.3 Clinical Validation. Licensor will provide access to all newly created clinical data involving the Applications as well as, where feasible, access to all existing clinical data. Licensor will also provide services related to further clinical validation of the Applications in combination with drugs. Services shall specifically include the composition of grant applications for clinical validation studies, as well as assistance with any funded clinical validation studies. Costs associated with these activities shall be covered by Pear at reasonable rates to be agreed by both parties.

 

3.1.4 Enhancement Requests . Licensor and Pear shall enter into a separate agreement for any enhancement requests made by Pear.

 

3.1.5 Additional Services . Licensor and Pear shall enter into a separate agreement for any other services requested by Pear.

 

3.1.6 Support and Maintenance . In exchange for the payment of the Support and Maintenance fees set forth in a separate agreement , if Pear so elects, Licensor will provide Pear with the Support and Maintenance Services (collectively, “ Support ”) more fully described in a separate agreement , which, for greater certainty, shall only consist of Tier 2 background support in relation to the Licensor Products.

 

3.2 Responsibilities of Pear . Subject to the Confidentiality provisions in Exhibit D , Pear will provide Licensor with access to any evaluations, methodology and the data produced through use of the Integrated Products that Pear’s partners/licensor allow Pear to access and provide (collectively, “Product Data”); provided that, Licensor may only use such Product Data for Licensor’s internal research purposes only. Without limiting the generality of the foregoing, and by way of illustration, (a) Licensor may not use any Product Data to market any end users on behalf of a competitive product or service; (b) the Product Data will not contain any personally identifiable information; and (c) such Product Data will be owned by Pear.

 

3.3 Mutual Obligations of the Parties . Unless agreed by the parties, this Agreement does not set forth any specific service level agreements for customer support. Absent further agreement, Pear will respond to any support requests arising from Users that relate specifically to the Pear Customizations or any Pear functionality or data contained in the Integrated Product. Licensor will provide customer support regarding any and all issues arising from the Licensor Products themselves in accordance with its standard support practices and levels.

 

 
3
 

   

4. HIPAA REQUIREMENTS.

 

4.1 Compliance with HIPAA . Licensor acknowledges that any Pear Data transmitted to Licensor hereunder may be subject to federal and state laws, rules and regulations relating to among other subjects, the confidentiality, privacy or security of patient information, including without limitation, the Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996, Public Law 104-191.45 C.F.R. Part 160, 162, 164 (“ HIPAA ”) and the applicable regulations promulgated thereunder. The parties will at all times comply with the applicable provisions of such laws, rules, and regulations and with the applicable corporate policies and provision of the parties, with respect to the performance of their obligations under this Agreement, with respect to the confidentiality, privacy and security of Protected Health Information (“ PHI ”) and electronic Protected Health Information, as defined in 45 C.F.R. § 164.501 (“ ePHI ”). For purposes of this Agreement, PHI means individually identifiable information as defined by the Standards for Privacy of Individually Identifiable Health Information, 45 C.F.R. Parts 160 and 164. Cross border data considerations and protocols will be designed by Pear to ensure compliance.

 

5. REQUIREMENTS REGARDING USERS.

 

5.1 User License Agreement . For Combination Products that have a shrink wrap End User License Agreement (an “ EULA ”), Licensor shall deliver to Pear the required EULA for delivery to the User. Pear shall deliver to the User with each such Combination Product and the appropriate EULA packaged correctly such that the User must perform the necessary steps to agree to the terms of the EULA prior to the User being able to use the Combination Product. For those Combination Products that do not have an associated shrink wrap EULA, Pear shall require the User to execute an EULA, in a form mutually agreed to by Pear and Licensor prior to delivering the Combination Product to the User. In the event that a prospective User desires to amend or change the EULA, such amendments or changes shall require Licensor’s prior written approval.

 

5.2 User Information and Reporting . Pear shall obtain from each User such information as required by Licensor from time to time and, if necessary, the consent of such User to collect such information and consent to provide such information to Licensor; provided that, notwithstanding the foregoing, Licensor shall not require any personally identifiable or personal health information. Within ten (10) business days after the end of each calendar quarter and upon the expiration or termination of this Agreement, Pear shall provide Licensor with the required information collected from each End User.

 

5.3 No Representations . Pear shall not:

 

(i) make any representations to any Person regarding the performance and functionality of the Combination Product or Stand-alone Product other than those contained in Licensor’s published specifications; or

 

(ii) hold itself out as an agent of Licensor and shall not, nor attempt to, negotiate any contractual arrangement as agent of Licensor, sign any agreement as if it is Licensor or otherwise bind Licensor to any contractual arrangement with a third Person, other than to deliver to an End User an EULA.

 

6. FEES.

 

6.1 License Fees . In consideration of the licenses granted to Pear herein, Pear will pay Licensor the license fees set forth in Exhibit B (the “ License Fee ”).

 

6.2 Reimbursement of Expenses . Pear will reimburse Licensor for all reasonable out-of-pocket expenses incurred by Licensor in performing services under Section 3.15 of this Agreement provided such expenses are approved in writing by Pear in advance. Such out-of-pocket expenses may include: reasonable travel expenses, other than for normal commuting, including airfares, rental vehicles, and highway mileage in company or personal vehicles at the then current IRS approved rate, and meals and lodging. Licensor shall submit an itemized statement of Licensor’s expenses due under this Section 6.2, including receipts and other documentation, on a monthly basis. Pear shall reimburse Licensor within forty-five (45) days from the receipt of each statement by Pear.

    

7. STANDARD LEGAL TERMS AND CONDITIONS: The Standard Legal Terms and Conditionsgoverning this Agreement are contained in Exhibit D and incorporated herein by reference.

 

 
4
 

   

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

 

 

PEAR THERAPEUTICS, INC.:

LICENSOR:

 

 

 

 

 

By:

By:

 

Name:

 

Name:

Scott Woodrow

 

Title:

 

Title:

CEO

 

Date:

 

Date:

12 / 29 / 2014

 

 

 

5


EXHIBIT 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Registration Statement on Form F-1 of our report dated September 17, 2015 with respect to the audited financial statements of Behavioural Neurological Applications and Solutions for the years ended December 31, 2014 and 2013, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading “Experts” in such Prospectus.

 

/s/ Turner, Stone & Company, LLP                                 

Dallas, Texas  

September 22, 2015