UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended February 28, 2017

 

or

 

¨  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ___________ to __________

 

Commission File No. 000-54768

 

LOOP INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

27-2094706

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

480 Fernand Poitras Terrebonne, Quebec, Canada J6Y 1Y4

(Address of principal executive offices zip code)

 

Registrant’s telephone number, including area code (450) 951-8555

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Common Stock, $.0001 Par Value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting company)

Emerging growth company

¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

At August 31, 2016, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting common stock held by non-affiliates of the Registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $46,536,147. At May 11, 2017, there were 32,595,173 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.

 

 
 
 
 

LOOP INDUSTRIES, INC.

 

TABLE OF CONTENTS

 

Page No.

PART I

Item 1.

Business

4

Item 1A.

Risk Factors

7

Item 1B.

Unresolved Staff Comments

11

Item 2.

Properties

11

Item 3.

Legal Proceedings

11

Item 4.

Mine Safety Disclosures

11

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

12

Item 6.

Selected Financial Data

13

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 8.

Financial Statements and Supplementary Data

17

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

18

Item 9A.

Controls and Procedures

18

Item 9B.

Other Information

19

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

20

Item 11.

Executive Compensation

23

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

27

Item 13.

Certain Relationships and Related Transactions, and Director Independence

28

Item 14.

Principal Accounting Fees and Services

29

PART IV

Item 15.

Exhibits and Financial Statement Schedules

30

Item 16

Form 10-K Summary

30

Signatures

31

 

 
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FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K of Loop Industries, Inc., a Nevada corporation (the “Company,” “we,” or “our”), contains “forward-looking statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology. These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, ability to improve and expand our capabilities, competition, expected activities and expenditures as we pursue our business plan, the adequacy of our available cash resources, regulatory compliance, plans for future growth and future operations, and the size of our addressable market and market trends. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these forward-looking statements. The economic environment within which we operate could materially affect our actual results. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under "Risk Factors." Additional factors that could materially affect these forward-looking statements and/or predictions include, among other things: (i) commercialization of our technology and products, (ii) development and protection of our intellectual property and products, (iii) our need for and ability to obtain additional financing, (iv) industry competition, (v) regulatory and other legal compliance, (vi) the exercise of the control over us by Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, (vii) other factors over which we have little or no control; and (viii) other factors discussed in our filings with the Securities and Exchange Commission (“SEC”).

 

Our management has included projections and estimates in this Form 10-K, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available.

 

In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

 

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

 

GLOSSARY

 

As used in this Annual Report on Form 10-K, the following terms are being provided so investors can better understand our business:

 

Depolymerization refers to a chemical process of breaking down polymers into its monomers or smaller oligomers.

 

MEG is an acronym for monoethylene glycol, one of the PET monomers. It is an organic compound primarily used as a raw material in the manufacture of polyester fibers and PET plastic.

 

Mother liquor refers to the solution that remains after crystallization, containing the original solute as well as other impurities that were not filtered out.

 

PET is an acronym for polyethylene terephthalate, which is a plastic resin and a type of polyester showing excellent tensile and impact strength, chemical resistance, clarity, process ability and reasonable thermal stability. PET is the material which is most commonly used for plastic packaging, including plastic bottles for water, carbonated soft drinks, containers for food and other consumer products, and is usually identified by a number 1, often inside an image of a triangle, on the packaging.

 

PTA is an acronym for purified terephthalic acid, another of the PET monomers. It is an organic compound used mainly in the production of PET plastic and polyester fiber. The resulting product appears as a crystalline substance, which is then filtered, purified, dried and stored.

 

 
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PART I

 

ITEM 1. BUSINESS

 

Overview

 

Our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy. Currently, the focus of our business is on depolymerizing waste PET plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PET into its base chemicals, PTA and MEG, at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature.

 

Depolymerization presents two unique advantages in recycling resin-based products: (i) the ability to return a recovered resin to virgin-resin-like quality, and (ii) the potential to recover a valuable feedstock from products that are economically challenging to recycle. When plastic is mechanically recycled, even small levels of contamination can compromise the performance of the resin. However, because depolymerization breaks down plastics into monomer form, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable.

 

We are a development-stage company and have not yet generated any revenues. Our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues. We intend to commercialize our technology by selling depolymerized LOOP™-branded PET resin to sustainably focused customers. During January 2016, we announced the successful completion of a pilot plant facility in Montreal, Canada with a production capacity of 2.5 metric tons per day of high purity PTA and MEG. In February 2017, we also announced the entry into an agreement for services with DrinkFinity, an affiliate of PepsiCo, effective as of January 1, 2017, pursuant to which, we will participate in a mail back recycling program, whereby PepsiCo and its affiliates, divisions and subsidiaries, will be provided custom-made bags for consumers to mail certain specified recyclable products to us and we will process the returned items through our proprietary technology. A copy of this agreement is filed as an exhibit to this Annual Report on Form 10-K.

 

Raw Material

 

Our technology uses waste PET plastics such as water bottles, soda bottles, consumer packaging, carpets and industrial waste as feedstock to process. These feedstocks are available through municipal triage centers, industrial recycling and landfill reclamation projects.

 

PET does not create a direct hazard to the environment, but due to its substantial fraction volume in the plastic waste stream and its high resistance to atmospheric and biological agents, it could be considered as a noxious material. PET accounts for 8% by weight and 12% by volume of the world’s solid waste.

 

PET bottles are characterized by high strength, low weight and permeability of gases (mainly CO 2 ), as well as by their aesthetic appearance (good light transmittance, smooth surface) and do not have any known adverse side effects on humans. Many attempts are currently directed toward recycling of PET waste, because of the interests in environmental protection, energy preservation and economic benefits.

 

Among the different recycling techniques (primary, mechanical, chemical and energy recovery), chemical recycling the most acceptable, according to the principles of “sustainable development” , since it leads to the formation of the raw materials from which the polymer is made, as well as of other secondary value-added products. Chemical recycling has been defined as the process leading to the total depolymerization of PET into monomers, or partial depolymerization into oligomers and other chemical substances.

 

According to NAPCOR (National Association for PET Container Resources), in 2015 in the United States:

 

· PET bottles represented a total of 5.9 billion lbs. of PET available to be recycled;
· Only 1.79 billion lbs. were collected; and
· There was only a 30.1% PET bottle recycling rate.

 

Among the various methods of PET recycling the most common is mechanical recycling, which refers to operations that aim to recover plastics waste via mechanical processes (grinding, washing, separating, drying, re-granulating and compounding).

 

The disadvantages of mechanical recycling of PET are that sorting is very labor intensive, and high energy costs are required to process the material. Mechanical PET recycling is also limited to single stream PET with no contamination. Other challenges include quality degradation and loss of clarity in the resulting recycled PET.

 

 
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Depolymerization

 

We have developed a proprietary process that enables us to depolymerize PET into its purest form of PTA and MEG under normal atmospheric pressure and at room temperature. Our unique depolymerization process can bring even degraded, colored or heavily contaminated PET that is not recyclable back to life in the form of its base monomers. The resulting monomers (PTA & MEG) can be repolymerized to produce virgin quality PET.

 

Our PET depolymerization process is completed through a series of chemical reactions:

 

· Post-consumer (i.e. waste) PET are shredded into approximately 5 mm size pieces;
· Shredded PET is put into a large reactor, where certain chemicals are added;
· The PET molecular chain is broken down ;
· PTA (solid) and MEG (liquid) and mother liquor (the solution that remains after crystallization, containing the original solute as well as other impurities that were not filtered out) are separated using a combination of centrifugation and distillation;
· The mother liquor is returned to the reactor to be reused in the process; and
· PTA and MEG are processed and used to produce PET.

 

Our depolymerized PET has been tested in third-party laboratory settings. This testing was conducted to determine whether the PTA and MEG meet certain levels of purity to be able to be used for making PET resin, and we have concluded that the PTA and MEG are of industrial grade purity, meaning they are suitable for use in commercial beverage bottles.

 

Prospective Future Growth

 

We believe that the production of PET plastic resin using PTA and MEG that has been produced through our proprietary depolymerization technology will become a new standard in plastic manufacturing. With the dual benefits of plastic waste control and reduction in the use of fossil fuels we believe that the adoption of Loop’s PET manufacturing process will be widespread.

 

In the medium term, we plan to establish depolymerization and PET manufacturing facilities in strategically located sites based on the availability of post-consumer PET for feedstocks in North America and Europe.

 

Our long-term growth plans include the development of other technology and processes that will support and promote the circular economy using other types of material, such as other forms of plastic or nylon.

 

Intellectual Property

 

We rely on a combination of patent and trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect our proprietary rights, which are primarily our patents, brand names, product designs and marks.

 

We have an issued U.S. patent with claims relating to our proprietary technology for depolymerization of PET. We expect the patent to expire on or around July 2035. Additionally, we have patent filings covering the same proprietary technology with jurisdictions that are parties to the Patent Cooperation Treaty, Argentina, members of the Gulf Cooperation Council and Taiwan. If patents are ultimately granted from these jurisdictions, we expect these patents to also expire on or around July 2035.

 

We also have a pending U.S. trademark application protecting the trademark name LOOP.

 

Essaddam Assignment

 

The depolymerization technology underlying our business was originally developed by Hatem Essaddam, who sold the depolymerization technology to Loop Holdings, Inc. (“Loop Holdings”) pursuant to an Intellectual Property Assignment Agreement dated October 27, 2014, by and among Hatem Essaddam, Loop Holdings, and Daniel Solomita, as supplemented by that certain Addendum to the Intellectual Property Assignment Agreement signed on October 27, 2014, by and among such parties.

 

Pursuant to the Intellectual Property Assignment Agreement, we made an initial payment of $0.4 million for the intellectual property and will make such additional payments of CDN$0.2 million (up to an aggregate of CDN$0.8 million) to Mr. Essaddam within sixty (60) days of each of the following milestones having been met, as follows:

 

(i)

an average of twenty (20) metric tons of PTA is produced per day by us for twenty (20) operating days;

(ii)

an average of thirty (30) metric tons of PTA is produced per day by us for thirty (30) operating days;

(iii)

an average of sixty (60) metric tons per day of PTA is produced per day by us for sixty (60) operating days; and

(iv)

an average of one hundred (100) metric tons of PTA is produced per day by us for sixty (60) operating days.

 

 
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Additionally, we are obligated to make royalty payments of up to CDN$25.7 million, payable as follows:

 

(a)

10% of gross profits on the sale of all products derived by us from the technology assigned to us under the agreement;

(b)

10% of any license fee paid to us in respect of any licensing or other right to use the technology assigned to us and granted to a third party by Essaddam;

(c)

5% of any royalty or other similar payment made to us by a third party to whom a license or other right to use the technology assigned to us has been granted by us; and

(d)

5% of any royalty or other similar payment made to us by a third party in respect of a sub-license or other right to use the technology assigned to us granted by the third party.

 

As of May 11, 2017, none of the above listed milestones have been met and we have not made any milestone or royalty payments.

 

Government Regulation and Approvals

 

As we seek to further develop and commercialize our business, we will be subject to extensive and frequently developing federal, state, provincial and local laws and regulations. Compliance with current and future regulations could increase our operational costs.

 

Our operations require various governmental permits and approvals. We are in the process of obtaining all necessary permits and approvals for the operation of our business; however, any of these permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits and approvals or to have the necessary approvals in place may adversely affect our operations and may subject us to penalties.

 

Employees

 

As of May 11, 2017, we have 21 employees, all located at our office in Terrebonne, Canada. 19 employees are full-time, of which 7 are in general and administration, 8 in research and development and 4 for the operation of our pilot plant and technical development for future commercialization facilities. We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We consider our relations with our employees to be good.

 

Corporate Information

 

We were originally incorporated in Nevada in March 2010 under the name Radikal Phones Inc., which was changed to First American Group Inc. in October 2010. On July 29, 2015, we completed a reverse acquisition of Loop Holdings, Inc., whereby we acquired all of its issued and outstanding common shares in a share exchange for approximately 78.1% of the capital stock of our company at the time. The depolymerization business of Loop Holdings, Inc. became our sole operating business. On June 22, 2015, our board of directors approved a change in the fiscal year end date from September 30 to last day of February. On July 21, 2015 we changed our name to Loop Industries, Inc.

 

Loop Holdings, Inc. was originally incorporated in Nevada on October 23, 2014. The depolymerization technology underlying our business was originally developed by Hatem Essaddam who sold the technology and related intellectual property rights to Loop Holdings in October 2014, pursuant to the license agreement described above in the section “—Intellectual Property– Essaddam Assignment” and 8198381 Canada Inc., a corporation organized under the federal laws of Canada and wholly-owned by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder. 8198381 Canada Inc. later sold the depolymerization technology and related intellectual property rights it held to Loop Holdings in June 2015 pursuant to a technology transfer agreement, which we filed as an exhibit to our Current Report on Form 8-K on June 30, 2015.

 

On May 24, 2016, 9449507 Canada Inc. was organized under the federal laws of Canada and on November 11, 2016, and became a wholly-owned subsidiary of Loop Industries, Inc. following the transfer by Mr. Solomita of all of the issued and outstanding common shares of 9449507 Canada Inc. to Loop Industries, Inc. In December 23, 2016, 9449507 Canada Inc. changed its legal name to Loop Canada Inc.

 

On December 31, 2016, 8198381 Canada Inc. entered into a purchase and sale agreement to transfer to Loop Canada Inc., all assets and liabilities it held pertaining to our business of depolymerizing plastics, including employees and operations.

 

On March 9, 2017, Loop Holdings, Inc. merged with and into us. As a result of the foregoing merger, Loop Canada Inc. is our sole remaining subsidiary.

 

Our principal executive offices are located at 480 Fernand Poitras Street, Terrebonne, QC J6Y 1Y4 Canada. Our telephone number is (450) 951-8555. Our website address is http://www.loopindustries.com. The information contained on, or that can be accessed through, our website is not a part of this Annual Report on Form 10-K.

 

 
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ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below together with all of the other information included in this Form 10-K before making an investment decision with regard to our securities. The statements contained in or incorporated herein that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, you may lose all or part of your investment.

 

RISKS RELATING TO OUR COMPANY

 

We have incurred net losses since inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. We have never generated revenue and may never be profitable.

 

Since our inception in 2010, we have incurred net losses. Our net loss for the year ended February 28, 2017 was $8.8 million. We have only one customer, and have not earned any revenues to date. We have financed our operations primarily through private placements of our common stock and have devoted substantially all of our efforts to research and development, as well as to building out our team. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantly from quarter to quarter. Although we believe that our business plan has significant profit potential, we may not attain profitable operations and our management may not succeed in realizing our business objectives. Our ability to generate revenue depends on our ability to successfully complete the development of our products, obtain the regulatory approvals necessary to commercialize our products and attract additional customers. We may not generate revenues from product sales for the next several years, if ever. If we are not able to develop our business as anticipated, we may not be able to generate revenues or achieve profitability.

 

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

Our depolymerization business was started in October 2014 with the incorporation of Loop Holdings, Inc. and acquisition of intellectual property from Hatem Essaddam and 8198381 Canada Inc., a corporation organized under the federal laws of Canada and wholly-owned by Mr. Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder. Our operations to date have been primarily limited to organizing and staffing our company, business planning, raising capital and developing our technology. We have not yet demonstrated the ability to manufacture a commercial-scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research focus to a company that is also capable of supporting commercial activities. We may not be successful in such a transition.

 

We expect to suffer losses in the immediate future that may cause us to curtail or discontinue our operations.

 

We expect to incur operating losses in future periods. These losses will occur because we do not yet have any revenues to offset the expenses associated with the development of our PET depolymerization business and our business operations, generally. We cannot guarantee that we will ever be successful in generating revenues in the future. We recognize that if we are unable to generate revenues, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will almost certainly fail.

 

We may not be able to execute our business plan or stay in business without additional funding.

 

Our ability to generate future operating revenues depends in part on whether we can obtain the financing necessary to implement our business plan. We will likely require additional financing through the issuance of debt and/or equity in order to establish profitable operations, and such financing may not be forthcoming. If there is no investor appetite to finance our specific business, we may not be able to acquire additional financing through credit markets or equity markets. Even if additional financing is available, it may not be available on terms favorable to us. Our failure to secure additional financing on favorable terms when it becomes required would have an adverse effect on our ability to remain in business.

 

If are unable to successfully scale our manufacturing processes, we may not meet customer demand.

 

To be successful, we will have to successfully scale our manufacturing processes while maintaining high product quality and reliability. If we cannot maintain high product quality on a large scale, our business will be adversely affected. We may encounter difficulties in scaling up production, including problems with the supply of key components. Even if we are successful in developing our manufacturing capability, we do not know whether we will do so in time to satisfy the requirements of our customers. The current manufacturing facility is a pilot plant with limited production capacity. In order to fully implement our business plans, we will need to move the operations to a larger facility, develop strategic partnerships or find other means to produce greater volumes of finished product.

 

 
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Disruption at, damage to or destruction of our pilot plant or facilities could impede our ability to process the PET and make PTA and MEG, which would harm our business, financial condition and operating results.

 

We currently rely on our manufacturing facilities at a single location in Montreal. Any interruption in manufacturing operations at this location could result in our inability to satisfy the product demands of our customers. A number of factors could cause interruptions, including, but not limited to, equipment malfunctions or failures, technology malfunctions, work stoppages or slow-downs, damage to or destruction of the facility or regional power shortages. As our equipment ages, it will need to be replaced. Replacement of equipment has the potential to introduce variations in the manufacturing process that may result in lot failures or manufacturing shut-down, delay in the release of lots, product recalls, spoilage or regulatory action. Any disruption that impedes our ability to process PET in a timely manner could reduce our revenues and materially harm our business.

 

The plastics manufacturing industry is extremely price competitive because of the commodity like nature of PET resin and its correlation to the price of crude oil. If our cost to manufacture recycled PET is not competitive with virgin PET or if the price of oil reduces significantly, it may adversely impact our ability to penetrate the market or be profitable.

 

The demand for recycled PET has fluctuated with the price of crude oil. If crude oil prices decline the cost to manufacture recycled PET may become comparatively higher than the cost to manufacture virgin PET. Our ability to penetrate the market will depend in part on the cost of manufacturing virgin PET and if we do not successfully distinguish our product from those of virgin PET manufacturers our entry into the market and our ability to secure customer contracts can be adversely affected.

 

The loss of the services of Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our business.

 

The development of our PET materials depolymerization business and the marketing of our prospective products will continue to place a significant strain on our limited personnel, management, and other resources. Our future success depends upon the continued services of our executive officers who are developing our business, and on our ability to identify and retain competent consultants and employees with the skills required to execute our business objectives. The loss of the services of Daniel Solomita or our failure to timely identify and retain competent personnel could negatively impact our ability to develop our business which could adversely affect our financial results and impair our growth.

 

Our pilot plant was completed early this year and we have not yet fully implemented all policies, procedures, and controls for the operation of a chemical manufacturing facility as required under various federal, provincial and local regulations and codes.

 

We are subject to health and safety as well as environmental, zoning and any other regulatory requirements to operate our pilot plant. Any failure to comply with ongoing regulatory requirements, as well as discovery of previously unknown problems, may result in, among other things, costly regulatory inspections, fines or remediation plans. If regulatory issues arise, the value of our business and our operating results may be adversely affected.

 

Additionally, applicable regulations may change, and additional government regulations may be enacted that could impact our business. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to maintain regulatory compliance, are slow or unable to adopt new requirements or policies, or effect changes to existing requirements, our business may be adversely affected.

 

Our failure to protect our intellectual property and proprietary technology may significantly impair our competitive advantage.

 

Our success and ability to compete depends in large part upon protecting our proprietary technology. We rely on a combination of patent, trademark and trade secret protection, nondisclosure and nonuse agreements to protect our proprietary rights. The steps we have taken may not be sufficient to prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. The patent and trademark law and trade secret protection may not be adequate to deter third party infringement or misappropriation of our patents, trademarks and similar proprietary rights.

 

 
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In addition, patents issued to us may be challenged, invalidated or circumvented. Our rights granted under those patents may not provide competitive advantages to us, and the claims under our patent applications may not be allowed. We may be subject to or may initiate interference proceedings in the United States Patent and Trademark Office, which can demand significant financial and management resources. The process of seeking patent protection can be time consuming and expensive and patents may not be issued from currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us.

 

We may in the future initiate claims or litigation against third parties for infringement of our proprietary rights in order to determine the scope and validity of our proprietary rights or the proprietary rights of our competitors. These claims could result in costly litigation and the diversion of our technical and management personnel.

 

We may face costly intellectual property infringement claims, the result of which would decrease the amount of cash we would require to operate and complete our business plan.

 

We anticipate that from time to time we will receive communications from third parties asserting that we are infringing certain patents and other intellectual property rights of others or seeking indemnification against alleged infringement. If anticipated claims arise, we will evaluate their merits. Any claims of infringement brought of third parties could result in protracted and costly litigation, damages for infringement, and the necessity of obtaining a license relating to one or more of our products or current or future technologies, which may not be available on commercially reasonable terms or at all. Litigation, which could result in substantial cost to us and diversion of our resources, may be necessary to enforce our patents or other intellectual property rights or to defend us against claimed infringement of the rights of others. Any intellectual property litigation and the failure to obtain necessary licenses or other rights could have a material adverse effect on our business, financial condition and results of operations.

 

We may be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.

 

As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). Section 404 requires us to include an internal control report with our Annual Report on Form 10-K. This report must include management's assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. No assurance can be given that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management's assessment or conclude that our internal control over financial reporting is operating effectively.

 

RISKS ASSOCIATED WITH OUR SECURITIES

 

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 authorize the issuance of 250,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of May 11, 2017, we had 32,595,173 shares of common stock issued and outstanding and one share of preferred stock issued and outstanding. The future issuance of common stock and/or preferred stock will result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock 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 might have an adverse effect on any trading market for our common stock.

 

 
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Our President and Chief Executive Officer and Chairman of the Board of Directors, Daniel Solomita, beneficially owns a majority of our capital stock, and accordingly, has control over stockholder matters, our business and management.

 

As of May 11, 2017, Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, beneficially owns 18,600,000 shares of common stock, or 57% of our issued and outstanding shares of common stock and also holds one share of Series A Preferred Stock. The one share of Series A Preferred Stock issued to Mr. Solomita holds a majority of the total voting power so long as Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of our common stock, assuring that Mr. Solomita retains control even if his presently-held 57% of the issued and outstanding shares of our common stock is diluted to a level below a majority.

 

Additionally, the one share of Series A Preferred Stock issued to Mr. Solomita contains protective provisions, which precludes us from taking certain actions without Mr. Solomita’s (or that of any person to whom the one share of Series A Preferred Stock is transferred) approval. More specifically, so long as any shares of Series A Preferred Stock are outstanding, we are not permitted to take certain actions without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class, including for example and without limitation, amending our articles of incorporation, changing or modifying the rights of the Series A Preferred Stock, including increasing or decreasing the number of authorized shares of Series A Preferred Stock, increasing or decreasing the size of the board of directors or remove the director appointed by the holders of our Series A Preferred Stock and declaring or paying any dividend or other distribution.

 

Moreover, because of the significant ownership position held by our insiders, new investors may not be able to effect a change in our business or management, and therefore, stockholders would have no recourse as a result of decisions made by management.

 

In addition, sales of significant amounts of shares held by Mr. Solomita, or the prospect of these sales, could adversely affect the market price of our common stock. Management's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of our company.

 

Though not now, we may be or in the future we may become subject to Nevada's control share law. A corporation is subject to Nevada's control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation. The law focuses on the acquisition of a "controlling interest" which means the ownership of outstanding voting shares sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the company in the election of directors: (i) one-fifth or more but less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.

 

The effect of the control share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares as are conferred by a resolution of the stockholders of the company, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.

 

If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder's shares.

 

In addition to the control share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and "interested stockholders" for three years after the "interested stockholder" first becomes an "interested stockholder," unless the company's board of directors approves the combination in advance. For purposes of Nevada law, an "interested stockholder" is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the company, or (ii) an affiliate or associate of the company and at any time within the two previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the company. The definition of the term "combination" is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the company's assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the company and its other stockholders.

 

The effect of Nevada's business combination law is to potentially discourage parties interested in taking control of us from doing so if it cannot obtain the approval of our board of directors.

 

 
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Because we do not intend to pay any cash dividends on our common stock, our stockholders 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 stock in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. Stockholders may not be able to sell shares when desired. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

We currently do not own any physical or real property. Our executive offices and operational facilities are located at 480 Fernand Poitras, Terrebonne, Quebec, Canada J6Y 1Y4. We initially entered into a lease with 6316123 Canada Inc. for approximately 9,607 square feet of industrial premises on the first floor of 480 Fernand Poitras on February 23, 2015 and entered into an additional secondary lease for the 3,460 square feet of industrial premises on the second floor on February 1, 2016. Both leases expire April 30, 2018, unless we elect to renew for an additional period of three years. We believe that our existing facilities are adequate for our current needs.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. As of February 28, 2017, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

We anticipate that we will expend significant financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. We also anticipate that we will expend significant financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

 
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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Since April 10, 2017, our common stock has been quoted on the OTCQX tier of the OTC Markets Group Inc. under the symbol “LLPP.” From October 29, 2015 through April 7, 2017, our common stock was quoted on the OTCQB tier of the OTC Markets Group Inc. under the stock symbol “LLPP.” From September 26, 2012 to October 28, 2015, our common stock was quoted on the OTCQB tier of the OTC Markets Group Inc. under the stock symbol “FAMG.” The following is a summary of the high and low closing bid prices of our common stock (rounded to the nearest penny) for the periods indicated, as reported by the OTC Markets Group, Inc. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.

 

 

 

Closing Bid Price

Per Share

 

 

 

High

 

 

Low

 

Year Ending February 28, 2018

 

 

 

 

 

 

First Quarter (through May 11, 2017)

 

$ 7.50

 

 

$ 5.00

 

 

 

 

 

 

 

 

 

 

Year Ended February 28, 2017

 

 

 

 

 

 

 

 

Fourth Quarter

 

$ 5.40

 

 

$ 3.31

 

Third Quarter

 

$ 4.10

 

 

$ 3.55

 

Second Quarter

 

$ 6.00

 

 

$ 3.50

 

First Quarter

 

$ 4.40

 

 

$ 3.41

 

 

 

 

 

 

 

 

 

 

Year Ended February 29, 2016

 

 

 

 

 

 

 

 

Fourth Quarter

 

$ 4.00

 

 

$ 3.20

 

Third Quarter

 

$ 4.25

 

 

$ 3.93

 

Second Quarter

 

$ 1.06

 

 

$ 1.06

 

First Quarter

 

$ 1.06

 

 

$ 1.06

 

 

On May 11, 2017, the closing bid price on the OTC Markets Group, Inc.’s OTCQX tier for our common stock was $7.50.

 

Holders

 

As of May 11, 2017, there were 32,595,173 shares of common stock issued and outstanding (excluding shares of common stock issuable upon conversion or conversion into shares of common stock of all of our currently outstanding Series A Preferred Stock and exercise of our warrants) held by approximately 141 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

 

Transfer Agent

 

Our transfer agent is Empire Stock Transfer of Henderson, Nevada. Their address is 1859 Whitney Mesa Dr., Henderson, Nevada 89014, and their telephone number is (702) 818-5898.

 

Dividends

 

We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. There are no restrictions in our Articles of Incorporation or By-laws that prevent us from declaring dividends. The Nevada Revised Statutes, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

 

· we would not be able to pay our debts as they become due in the usual course of business; or

 

 

· our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our Articles of Incorporation.

 

 
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Recent Sales of Unregistered Securities

 

During the year ended February 28, 2017, we:

 

(i) sold 1,275,340 shares of common stock and 637,670 warrants to purchase shares of common stock resulting in gross proceeds to us of approximately $3.8 million pursuant to Section 4(a)(2) of the Securities Act and Rule 506 to accredited investors in the United States and pursuant to Rule 903(b)(3) of Regulation S for investors outside the United States;

 

 

(ii) issued 200,000 shares of common stock at $0.80 per share upon the exercise of a warrant held by 912820 Canada Inc., a corporation duly formed and existing under the laws of Canada and controlled by Brian Young, one of our directors, resulting in proceeds to us of $0.2 million and made pursuant to Section 4(a)(2) of the Securities Act;

 

 

(iii) issued 38,000 shares upon cash-less exercise of 47,500 warrants;

 

 

(iv)

issued a warrant to purchase 75,000 shares of our common stock at an exercise price of $3.00 per share to our then Chief Financial Officer pursuant to Section 4(a)(2) of the Securities Act;

 

 

(v) issued 23,166 shares for consulting services at a fair value of $3.00 per share resulting in total expenses of $69,498 pursuant to Section 4(a)(2) of the Securities Act.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

As of February 28, 2017, the following securities are authorized for issuance under equity compensation plans:

 

Plan category

 

Number of securities to be

issued upon exercise of

outstanding options, warrants

and rights

 

Weighted-average exercise

price of outstanding options

price of outstanding options,

warrants, and rights

 

Number of securities

remaining available for future

issuance under equity

compensation plans

Equity compensation plans approved by security holders

 

0

 

0

 

0

Equity compensation plans not approved by security holders

 

1,010,000

 

$0.96

 

4,000,000

Total

 

1,010,000

 

$0.96

 

4,000,000

 

Purchases of Equity Securities by the Registrant and Affiliated Purchasers

 

We did not purchase any of our shares of common stock or other securities during the year ended February 28, 2017.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report.

 

Our business develops technology and processes to promote the regeneration and reuse of materials to sustain a circular economy.

 

Currently, the focus of our business is on the depolymerizing waste PET plastics and converting them into valuable chemicals, ready to be reintroduced into the manufacturing of virgin PET plastic. Our proprietary technology breaks down PET into its base chemicals, PTA and MEG, at a recovery rate of over 90% and under normal atmospheric pressure and at room temperature.

 

Depolymerization presents two unique advantages in recycling resin-based products: (i) the ability to return a recovered resin to virgin-resin-like quality, and (ii) the potential to recover a valuable feedstock from products that are economically challenging to recycle. When plastic is mechanically recycled, even small levels of contamination can compromise the performance of the resin. However, because depolymerization breaks down plastics into monomer form, all contamination is removed. Our unique depolymerization process can be applied to all sorts of post-consumer PET, including degraded, colored or heavily contaminated PET that is not currently recyclable.

 

We are a development-stage company and have never generated any revenues. Our depolymerization technology must be scaled-up before we can commercialize the technology and generate any revenues. We intend to sell depolymerized LOOP™-branded PET resin to sustainably focused customers. During January 2016, we announced the successful completion of a pilot plant facility in Montreal, Canada with a production capacity of 2.5 metric tons per day of high purity PTA and MEG.

 

 
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PLAN OF OPERATION

 

We are planning to and have begun taking steps to build a commercial scale facility with an installed capacity of a minimum of 10,000 metric tons (MT) per annum to supply our potential customers with LOOP™ branded PET resin of up to 50% recycled content. We are planning to finance any new facilities through additional sales of our common stock, government assistance, including grants and low-interest loans and traditional bank financing.

 

We are conducting qualification testing of our LOOP™ branded PET resin and negotiating long term supply contracts with potential customers. In addition, we are optimizing our manufacturing process to ensure a smooth transition from pilot scale to full scale commercial manufacturing facility.

 

Our plan of operation also includes the development of the LOOP™ branded PET resin, by establishing co-marketing and co-branding initiatives with potential customers. LOOP™ branded PET resin will primarily focus on educating consumers on the importance of the circular economy and the Loop technology that can play a pivotal role in this new economy.

 

RESULTS OF OPERATIONS

 

For the years ended February 28, 2017 and February 29, 2016

 

We recorded no revenues for the years ended February 28, 2017 and February 29, 2016.

 

We realized a net loss from operations of $8.8 million for the 12 months ended February 28, 2017 compared to a net loss of $1.7 million for the year ended February 29, 2016. This increase in net loss from operations is mainly due to a $5.5 million charge for the year ended February 28, 2017 relating to the fair value of 1,000,000 shares of common stock issuable to the majority stockholder for services.

 

The remaining increase in expenses of $1.6 million can be attributed to the following items:

 

· An increase in payroll and salaries cost of $0.4 million mainly because the payroll expense for the period ended February 29, 2016 does not reflect a full year of salaries expense as employees were hired throughout the year. Actual head count increased by only 1 from February 29, 2016 to February 28, 2017.

 

 

· An increase of $0.7 million in research and development expenses, net of research and development tax credits received in the year of $150,426.

 

 

· An increase of $0.2 million in depreciation and amortization charges arising from an increase in equipment purchases for the pilot plant.

 

 

· The remaining $0.3 million increase is an overall increase among other operating expenses as employees and activity increased.

 

Activity in the past year focused on the build out of the pilot plant, continued testing and improvement of our depolymerization process as well as testing of various feedstocks used in the depolymerization process.

 

On the commercial side, we have undertaken various marketing initiatives to raise awareness of the Loop depolymerization process. In addition, we have been working with future customers and other key stakeholders to ensure that the Loop™ branded PET resin meets customers’ needs and specifications once commercial production begins.

 

 
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LIQUIDITY AND CAPITAL RESOURCES

 

At February 28, 2017, we had a cash balance of $0.9 million and a working capital balance of $0.3 million. During the year ended February 28, 2017, we used $2.9 million in operations and purchased capital equipment of $0.5 million. We raised funds of $4.0 million through the sale of additional common stock and exercise of warrants for a net increase in its cash position of $0.6 million.

 

Subsequent to February 28, 2017, we raised an additional $5.9 million from the sale of our common stock. We believe we have sufficient funds to continue our operations at least through the end of fiscal year 2018; however, we will require additional financing through either debt or equity to transition from pilot scale to full scale commercial manufacturing.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of February 28, 2017, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the SEC.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

We have used estimates to determine the depreciable life of property and equipment which affects our depreciation and amortization charge for the year. We have also used estimates in determining the useful life of our intangible assets as well as whether there was any impairment to the carrying value of the intangible assets. Finally, we have also used estimates in recording the fair value of certain stock instruments.

 

Foreign Currency Translations and Transactions

 

We present our consolidated financial statements in U.S. Dollars, the functional currency of our company, but most of our operating costs, incurred by our Canadian operations are in Canadian dollars. Capital accounts of our Canadian operations are translated into U.S. Dollars at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact the costs of our operations. We currently do not engage in any currency hedging activities.

 

 
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The following table summarizes the exchange rates used:

 

 

 

Year Ended ,

 

 

 

February 28,

2017

 

 

February 29,

2016

 

Period end Canadian $: US Dollar exchange rate

 

$ 0.75

 

 

$ 0.74

 

Average period Canadian $: US Dollar exchange rate

 

$ 0.76

 

 

$ 0.77

 

 

Expenditures are translated at the average exchange rate for the period presented.

 

Stock Based Compensation

 

We periodically issue warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We account for warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.

 

The fair value of our warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

Recently Issued Accounting Pronouncements

 

See Notes to Financial Statements included elsewhere in this Form 10-K for management’s discussion of recently accounting pronouncements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.

 

 
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Loop Industries, Inc.

February 28, 2017

Index to the Consolidated Financial Statements

 

Contents

Page(s)

Report of Independent Registered Public Accounting Firm

F-1

Consolidated balance sheets at February 28, 2017 and February 29, 2016

F-2

Consolidated statements of operations and comprehensive loss for the years ended February 28, 2017 and February 29, 2016

F-3

Consolidated statement of changes in stockholders' equity for the years ended February 28, 2017 and February 29, 2016

F-4

Consolidated statement of cash flows for the years ended February 28, 2017 and February 29, 2016

F-5

Notes to the consolidated financial statements

F-6

 

 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Loop Industries, Inc.

Terrebonne, Quebec, Canada

 

We have audited the accompanying consolidated balance sheets of Loop Industries, Inc. and subsidiaries (“the Company”) as of February 28, 2017 and February 29, 2016 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits 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 audits included consideration of internal control over financial reporting as a basis for designing audit procedures that we considered appropriate under 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Loop Industries, Inc. and subsidiaries as of February 28, 2017 and February 29, 2016, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

WEINBERG & COMPANY, P.A.

Los Angeles, California

May 30, 2017

 

 
F-1
 
Table of Contents

 

Loop Industries, Inc.

Consolidated Balance Sheets

 

 

 

 

February 28,

2017

 

 

 

February 29,

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash

 

$ 916,487

 

 

$ 422,586

 

Valued added tax and other receivables

 

 

259,297

 

 

 

253,041

 

Prepayments and other current assets

 

 

-

 

 

 

36,129

 

Total current assets

 

 

1,175,784

 

 

 

711,756

 

 

 

 

 

 

 

 

 

 

Property and Equipment, net of accumulated depreciation of $497,244 and $149,609, respectively

 

 

1,566,969

 

 

 

1,399,354

 

 

 

 

 

 

 

 

 

 

Intellectual Property, net of accumulated amortization of $137,050 and $73,471, respectively

 

 

308,000

 

 

 

371,579

 

Total assets

 

$ 3,050,753

 

 

$ 2,482,689

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$ 161,536

 

 

$ 363,083

 

Accrued Officers Compensation

 

 

360,000

 

 

 

210,000

 

Advances from majority stockholder

 

 

391,695

 

 

 

492,128

 

Total current liabilities

 

 

913,231

 

 

 

1,065,211

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.0001: 250,000,000 shares authorized; 31,451,973 and 29,910,800 shares issued and outstanding, respectively

 

 

3,146

 

 

 

2,992

 

Additional paid-in capital

 

 

8,723,390

 

 

 

3,918,356

 

Common stock issuable, 1,000,000 and 204,667 shares at February 28, 2017 and February 29, 2016, respectively

 

 

5,500,000

 

 

 

614,001

 

Accumulated deficit

 

 

(11,937,803 )

 

 

(3,123,802 )

Accumulated other comprehensive (loss) gain

 

 

(151,211 )

 

 

5,931

 

Total stockholders' equity

 

 

2,137,522

 

 

 

1,417,478

 

Total liabilities and stockholders' equity

 

$ 3,050,753

 

 

$ 2,482,689

 


See accompanying notes to the consolidated financial statements .

 

 
F-2
 
Table of Contents

 

Loop Industries, Inc.

Consolidated Statements of Operations and Comprehensive Loss

For the years ended February 28, 2017 and February 29, 2016

 

 

 

 

February 28,
2017

 

 

February 29,

2016

 

 

 

 

 

 

 

 

 

Revenue

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses -

 

 

 

 

 

 

 

 

 

General and administrative

 

 

 

6,980,281

 

 

 

1,748,044

 

Research and development

 

 

 

1,454,440

 

 

 

801,666

 

Depreciation and amortization

 

 

 

397,445

 

 

 

211,845

 

Cost of reverse merger

 

 

 

-

 

 

 

60,571

 

Foreign exchange (gain) loss

 

 

 

(18,165 )

 

 

14,240

 

Total operating expenses

 

 

 

8,814,001

 

 

 

2,836,366

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

(8,814,001 )

 

 

(2,836,366 )

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income-

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

(157,142 )

 

 

5,931

 

Comprehensive Loss

 

 

$ (8,971,143 )

 

$ (2,830,435 )

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

 

 

-Basic and Diluted

 

 

$ (0.28 )

 

$ (0.10 )

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

-Basic and Diluted

 

 

 

31,102,004

 

 

 

27,359,605

 

 

See accompanying notes to the consolidated financial statements.

 

 
F-3
 
Table of Contents

 

Loop Industries, Inc.

Consolidated Statement of Changes in Stockholders' Equity

For the years ended February 28, 2017 and February 29, 2016

 

 

 

Common stock
par value $0.0001

 

 

Preferred stock
par value $0.0001

 

 

 

Additional

 

 

Common

 

 

 

 

 

Accumulated Other

Comprehensive

 

 

Total

 

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

 

Paid-in

 

 

Stock

 

 

Accumulated

 

 

Income

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

shares

 

 

Amount

 

 

Capital

 

 

Issuable

 

 

Deficit

 

 

(Loss)

 

 

Equity

 

Balance, February 28, 2015

 

 

20,498,750

 

 

$ 2,050

 

 

 

-

 

 

$ -

 

 

$ 1,197,140

 

 

$ -

 

 

$ (287,436

)

 

$ -

 

 

$ 911,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash

 

 

2,796,250

 

 

 

280

 

 

 

 

 

 

 

 

 

 

 

2,236,720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,237,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issuable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

614,001

 

 

 

 

 

 

 

 

 

 

 

614,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of Warrants issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

404,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

404,506

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of Shares Issued as a Settlement

 

 

100,000

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

79,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares upon reverse merger

 

 

6,515,800

 

 

 

652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

652

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,931

 

 

 

5,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of preferred share to an officer

 

 

 

 

 

 

 

 

 

 

1

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,836,366 )

 

 

 

 

 

 

(2,836,366

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 29, 2016

 

 

29,910,800

 

 

 

2,992

 

 

 

1

 

 

 

-

 

 

 

3,918,356

 

 

 

614,001

 

 

 

(3,123,802 )

 

$ 5,931

 

 

 

1,417,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares for cash

 

 

1,275,340

 

 

 

128

 

 

 

 

 

 

 

 

 

 

 

3,825,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,826,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclass. of common shares issuable to shares oustanding

 

 

204,667

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

613,981

 

 

 

(614,001 )

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of Warrants issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

135,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

135,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of shares issued for services and as a settlement

 

 

(200,000 )

 

 

(20 )

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares upon exercise of warrants for cash

 

 

200,000

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

159,980

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for services

 

 

23,166

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

69,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares upon cash-less exercise of warrants

 

 

38,000

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

(4 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of common stock issuable for services - officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,500,000

 

 

 

 

 

 

 

 

 

 

 

5,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(157,142 )

 

 

(157,142 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,814,001 )

 

 

 

 

 

 

(8,814,001

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 28, 2017

 

 

31,451,973

 

 

$ 3,146

 

 

 

1

 

 

$ -

 

 

$ 8,723,390

 

 

$ 5,500,000

 

 

$ (11,937,803 )

 

$ (151,211 )

 

$ 2,137,522

 

 

See accompanying notes to the consolidated financial statements.

 

 
F-4
 
Table of Contents

 

Loop Industries, Inc.

Consolidated Statements of Cash Flows


 

 

 

For the year

ended

February 28,
2017

 

 

 

For the year

ended

February 29,

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$ (8,814,001 )

 

$ (2,836,366

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

333,866

 

 

 

148,266

 

Amortization expense

 

 

63,579

 

 

 

63,579

 

Amortization of the fair value of common shares issued for services

 

 

-

 

 

 

534,000

 

Fair value of shares issued for services and settlement

 

 

69,498

 

 

 

80,000

 

Fair value of warrants issued for services

 

 

135,673

 

 

 

404,506

 

Fair value of common stock issuable for services - officer

 

 

5,500,000

 

 

 

-

 

Cost of reverse merger

 

 

-

 

 

 

60,571

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Valued added tax and other receivables

 

 

(94,336 )

 

 

(219,927

)

Prepayments and other current assets

 

 

36,129

 

 

 

(29,674

)

Accounts payable and accrued liabilities

 

 

(201,544 )

 

 

350,345

 

Accrued officer compensation

 

 

150,000

 

 

 

180,000

 

Intellectual property obligation

 

 

-

 

 

 

(212,880

)

Advances from majority stockholder

 

 

(12,354 )

 

 

369,825

 

Net Cash Used in Operating Activities

 

 

(2,833,490 )

 

 

(1,107,755

)

  

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(513,022 )

 

 

(1,598,723

)

  

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

(513,022 )

 

 

(1,598,723

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from sales of common shares and exercise of warrants

 

 

3,986,016

 

 

 

2,237,000

 

Advances from issuable common shares

 

 

-

 

 

 

614,001

 

Net Cash Provided by Financing Activities

 

 

3,986,016

 

 

 

2,851,001

 

  

 

 

 

 

 

 

 

 

Effect of exchange rate changes

 

 

(145,603 )

 

 

68,267

 

Net Change in Cash

 

 

493,901

 

 

 

212,790

 

  

 

 

 

 

 

 

 

 

Cash - beginning of period

 

 

422,586

 

 

 

209,796

 

  

 

 

 

 

 

 

 

 

Cash - end of period

 

$ 916,487

 

 

$ 422,586

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Income tax paid

 

$ -

 

 

$ -

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Net liabilities assumed upon reverse merger

 

$ -

 

 

$ 59,919

 

 

See accompanying notes to the consolidated financial statements.

 

 
F-5
 
Table of Contents

 

Loop Industries, Inc.

Years Ended February 28, 2017 and February 29, 2016

Notes to the Consolidated Financial Statements

 

Note 1 – The Company and basis of Presentation

 

The Company

 

Loop Industries, Inc. was incorporated on March 11, 2010 under the laws of the State of Nevada, under the name "Radikal Phones Inc." We changed our name to "First American Group Inc." on October 7, 2010, and then we changed our name to our current name, "Loop Industries, Inc.", effective July 21, 2015.

 

On June 29, 2015, Loop Industries, Inc. (then known as First American Group) (the "Company") entered into a Share Exchange Agreement (the "Share Exchange Agreement"), by and among the Company, and the holders of common stock of Loop Holdings, Inc. ("Loop Holdings"). Under the terms and conditions of the Share Exchange Agreement, the Company offered, sold and issued 23,257,500 shares of common stock in consideration for all the issued and outstanding shares in Loop Holdings. The effect of the issuance was that Loop Holdings shareholders held approximately 78.1% of the issued and outstanding shares of common stock of the Company upon consummation of the Share Exchange Agreement.

 

Pursuant to a Stock Redemption Agreement dated June 29, 2015 entered into commensurate with the share exchange, the Company redeemed 25,000,000 shares of First American Group common stock from two stockholders' for an aggregate redemption price of $16,000.

 

As the former owners and management of Loop Holdings had voting and operating control of the Company after the share exchange, the transaction has been accounted for as a recapitalization with Loop Holdings deemed the acquiring company for accounting purposes, and the Company deemed the legal acquirer. No step-up in basis or intangible assets or goodwill was recorded and the aggregate cost of $60,571 representing the net liabilities assumed of $35,243, $16,000 cost of the redeemed shares and closing costs of $9,328 has been reflected as a cost of the transaction. The consolidated financial statements reflect the historical results of Loop Industries prior to the Share Exchange, and that of the combined company following the Share Exchange.

 

The Company engages in the designing, prototyping and building a closed loop plastics recycling business that leverages a proprietary de-polymerization technology.

 

All references to shares of common stock in this Annual Report on Form 10-K give retroactive effect to a one-for-four (1:4) reverse split of the Company's issued and outstanding shares of common stock, which reverse split took effect on the OTCQB on September 21, 2015.

 

On March 9, 2017, Loop Holdings, a wholly-owned subsidiary of the Company, merged with and into the Company, with the Company being the surviving entity as a result of the merger.

 

Basis of Presentation

 

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America ("US GAAP") and comprise the consolidated financial position and results of operations of Loop Industries, Inc. and an operating division of 8198381 Canada Inc., (819 Canada), a Canadian company that is owned 100% by Mr. Daniel Solomita, the majority shareholder of Loop Industries, Inc.

 

The Company determined due to the close association between the Company and the division of 819 Canada, the ongoing management of 819 Canada by the Company's majority stockholder, that the activities of 819 Canada are principally related to the Loop Industries, Inc., and the Company's the right to receive the outputs from the activities of 819 Canada which could potentially be significant to the Company, 819 Canada is a variable interest entity requiring consolidation with the Company. The Company determined that it is both the primary beneficiary and provider of financial support to these 819 Canada operations.


 
F-6
 
Table of Contents

 

On May 24, 2016, 9449507 Canada Inc. was incorporated to absorb all the assets and liabilities of 819 Canada pertaining to the Company's depolymerization business. On November 11, 2016, the shares of 9449507 Canada Inc., which was wholly owned by Mr. Solomita, were transferred to Loop Industries Inc. In December 23, 2016, 9449507 Canada Inc., changed its legal name to Loop Canada Inc. In December 31, 2016, all employees, assets, liabilities, and operations of 819 Canada pertaining to the Company's depolymerization business, were transferred to Loop Canada Inc.

 

Intercompany balances and transactions have been eliminated in consolidation.

 

Liquidity

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has no recurring source of revenue and during the year ended February 28, 2017, the Company incurred a net loss of $8.8 Million, used cash in operations of $2.8 Million. As of February 28, 2017, the Company had cash on hand of $916,487 and stockholders’ equity of $2,137,522. Subsequent to February 28, 2017 and through the date of this filing, the Company raised an additional $5,897,188 through the sale of its common shares (See Note 10).

 

Management estimates that the current funds on hand will be sufficient to continue operations through the next twelve months. However, the Company will need additional financing through either debt or equity to finalize the transition from pilot scale to a full scale commercial manufacturing facility. Management is currently seeking additional funds, primarily through the issuance of debt and equity securities for cash and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable.

 

No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company could obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case of equity financing.

 

 
F-7
 
Table of Contents

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for depreciable lives of property and equipment, analysis of impairments of recorded intangibles, accruals for potential liabilities and assumptions made in calculating the fair value of certain stock instruments.

 

Fair value of financial instruments

 

The Company applies FASB ASC 820, Fair Value Measurement, which defines fair value and establishes a framework for measuring fair value and making disclosures about fair value measurements. FASB ASC 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring financial instruments at fair value. Market price observability is impacted by a number of factors, including the type of financial instruments and the characteristics specific to them. Financial instruments with readily available quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

There are three levels within the hierarchy that may be used to measure fair value:

 

Level 1 —

 

A quoted price in an active market for identical assets or liabilities.

Level 2 —

 

Significant pricing inputs are observable inputs, which are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources.

Level 3 —

 

Significant pricing inputs are unobservable inputs, which are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

 

The fair value measurements level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepayments, accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments.

 

 
F-8
 
Table of Contents

 

Foreign Currency Translations and Transactions

 

The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenses are translated at the average exchange rate of the period. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.

 

The following table summarizes the exchange rates used:

 

 

 

Year Ended,

 

 

 

2017

 

 

2016

 

Period end Canadian $: US Dollar exchange rate

 

$ 0.75

 

 

$ 0.74

 

Average period Canadian $: US Dollar exchange rate

 

$ 0.76

 

 

$ 0.77

 

 

Expenditures are translated at the average exchange rate for the period presented.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Value added tax, tax credits and other receivables

 

The Company is registered for the Canadian Federal and Provincial Goods and Services Taxes. As a registrant, the company is obligated to collect, and is entitled to claim sale taxes paid on its expenses and capital expenditures incurred in Canada. As at the Balance Sheet date of February 28, 2017, and February 29, 2016, the computed net recoverable sale taxes amounted to $198,830 and $253,041, respectively.

 

In addition, 819 Canada and Loop Canada are entitled to receive government assistance in the form of research and development tax credits from the federal and provincial taxation authorities, based on qualifying expenditures incurred during the preceding calendar year. These credits are not dependent on ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records these tax credits, as a reduction of research and development expenses, when the Company can reasonably estimate the amounts and it is more likely than not they would be received. During the year ended February 28, 2017, the Company recorded USD $148,547 as a reduction of research and development expenses upon receiving confirmation from the tax authorities. On February 27, 2017, 819 Canada recieved from the taxation authorities $88,080 as reimbursement from this amount. No tax credits were recorded during the year ended February 29, 2016.

 

Property and Equipment

 

Property and equipment are recorded at cost and are amortized over their estimated useful lives using the straight-line method over the following periods:

 

Office equipment and furniture

5-8 years

Machinery and Equipment

5-7 years

Leasehold improvements

3 years


 
F-9
 
Table of Contents

 

Leaseholds improvements are amortized over the shorter of the related lease terms or their estimated useful lives. Costs related to repairs and maintenance of property and equipment are expensed in the period in which they are incurred. Upon sale or disposal, the Company writes off the cost of the asset and the related amount of accumulated depreciation. The resulting gain or loss is included in the consolidated statement of operations.

 

Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended February 28, 2017 and February 29, 2016, the Company did not recognize any impairment for its property and equipment.

 

Intangible Assets

 

Management performs impairment tests of indefinite-lived intangible assets at least annually, or whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred.

 

The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified. If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets. The Company's estimate of fair value is based on the best information available, in the absence of quoted market prices. The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach as described above. If the estimate of an intangible asset's remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

 

As of February 28, 2017, and February 29, 2016 the Company determined that there were no indicators of impairment of its recorded intangible assets.

 

Stock Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (FASB) whereas the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

 
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Table of Contents

 

Income Taxes

 

The Company calculates its income tax charge on the basis of the tax laws enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income, in accordance with FASB ASC 740, Income Taxes. The Company uses an asset and liability approach for financial accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

 

Research and Development Costs

 

Research and development expenses relate primarily to the development, design, testing of preproduction samples, prototypes and models, compensation, and consulting fees, and are expensed as incurred. Total research and development costs recorded during the year ended February 28, 2017 and February 29, 2016 amounted to $1,454,440 and $801,666, respectively.

 

Net Loss per Share

 

The Company computes net loss per share in accordance with FASB ASC 260 Earnings per share. Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of shares of Common Stock outstanding during the year. The Company includes common stock issuable in its calculation. Diluted earnings (loss) per share is computed by dividing the net income (loss) applicable to Common Stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation if their effect is antidilutive.

 

For the years ended February 28, 2017 and February 29, 2016, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have an anti-dilutive effect. The potentially dilutive securities consisted of 1,647,670 outstanding warrants as of February 28, 2017 and 2,322,334 outstanding warrants as of February 29, 2016, respectively.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. On August 12, 2015, FASB delayed the required implementation to fiscal years ending after December 15, 2017 but now permitted organizations such the Company to adopt earlier. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management has determined to adopt ASU 2014-09 when it becomes effective for the Company in Fiscal 2017 and has not determined the effect of the standard on our ongoing financial reporting.


 
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Table of Contents

 

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases . ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company's financial statements and disclosures.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

 

Note 3 – Property and Equipment

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

Useful

 

 

February 28,

 

 

February 29,

 

 

 

Life

 

 

2017

 

 

2016

 

 

 

(years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Machinery and Equipment

 

5 - 7

 

 

$ 1,590,187

 

 

$ 1,126,147

 

Office equipment and furniture

 

5 - 8

 

 

 

131,607

 

 

 

108,030

 

Leasehold improvements

 

3

 

 

 

342,419

 

 

 

314,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,064,213

 

 

 

1,548,963

 

Less: accumulated depreciation

 

 

 

 

 

(497,244 )

 

 

(149,609 )

Property and equipment, net

 

 

 

 

$ 1,566,969

 

 

$ 1,399,354

 

 

Depreciation expense is recorded as an operating expense in the consolidated statements of operations and comprehensive loss and amounted to $333,866 and $148,266 for the years ended February 28, 2017 and February 29, 2016, respectively.

 

Note 4 – Intellectual Property

 

On October 27, 2014, the Company entered into an intellectual property agreement with Mr. Hatem Essaddam wherein the Company purchased a certain technique and method for $445,050 allowing for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure. The Company will use such technique and know-how in its manufacturing facility. The technology is being amortized using the straight-line method over the 7 years estimated used life of the patents.

 

 
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Table of Contents

 

In addition to the $445,050 paid by the Company under the Intellectual Property Assignment Agreement, the Company is required to make additional payments totaling CDN$800,000 Mr. Essaddam within sixty (60) days of each of the following milestones (the "Milestones") having been met, as follows:

 

(i)

CDN$200,000 when an average of twenty (20) metric tons per day of terephthalic acid is produced by the Company for twenty (20) operating days;

 

(ii)

CDN$200,000 when an average of thirty (30) metric tons per day of terephthalic acid is produced by the Company for thirty (30) operating days;

 

(iii)

CDN$200,000 when an average of sixty (60) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days; and

 

(iv)

CDN$200,000 when an average of one hundred (100) metric tons per day of terephthalic acid is produced by the Company for sixty (60) operating days.

 

As of February 28, 2017, the Company is still in its test pilot program, none of the Milestones have been met, and accordingly no additional CDN$200,000 payment has been made.

 

Additionally, the Company is obligated to make royalty payments of up to CDN$27,000,000, payable as follows:

 

(a)

10% of gross profits on the sale of all products derived by the Company from the technology assigned to the Company under the agreement;

(b)

10% of any license fee paid to the Company in respect of any licensing or other right to use the technology assigned to the Company and granted to a third party by the Assignee;

(c)

5% of any royalty or other similar payment made to the Company by a third party to whom a license or other right to use the technology assigned to the Company has been granted by the Company; and

(d)

5% of any royalty or other similar payment made to the Company by a third party in respect of a sub-license or other right to use the technology assigned to the Company granted by the third party.

 

As of February 28, 2017, the Company have not made any royalty payments under the Intellectual Property Assignment Agreement.

 

Amortization expense is recorded as an operating expense in the consolidated statements of operations and comprehensive loss and amounted to $63,579 and $63,579 for the year ended February 28, 2017 and February 29, 2016, respectively. As of February 28, 2017, and February 29, 2016, accumulated amortization was $137,050 and $73,471, respectively.

 

Future estimated patent amortization costs are:

 

Year Ended February 28,

 

Amount

 

2018

 

 

63,579

 

2019

 

 

63,579

 

2020

 

 

63,579

 

2021

 

 

63,579

 

Thereafter

 

 

53,684

 

Total

 

$ 308,000

 

 

 
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Table of Contents

 

Note 5 – Related Party Transactions

 

Advances from Major Shareholder

 

Mr. Daniel Solomita, the Company's major stockholder and CEO, or companies controlled by him, has made advances to the Company to finance its operations. The amounts due to these entities as of February 28, 2017 and February 29, 2016 were $391,695 and $492,128, respectively. The advances are unsecured, non-interest bearing with no formal terms of repayment.

 

Employment Agreement and Accrued Compensation due to Major Shareholder

 

The Company entered into employment agreement with Daniel Solomita, the Company's President and Chief Executive Officer for an indefinite term. During the term, officer shall receive monthly salary of $15,000. Compensation expense under this agreement amounted to $180,000 during the years ended February 28, 2017, and February 29, 2016. As of February 28, 2017, and February 29, 2016, accrued compensation of $360,000 and $210,000, respectively, was due to Mr. Solomita. Starting January 2017, Mr. Solomita has received payment of his salary on a bi-weekly fashion as other employees, and on May 10, 2017, the total accrued compensation due to Mr. Solomita for an amount of $360,000 was paid.

 

In addition, the Company agreed to issue the officer 4 million shares of the Company's common stock, in tranches of one million shares each, if certain milestones were met. The bonus of 4,000,000 shares of common stock is payable to Mr. Solomita as follows:

 

(i)

1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company's securities are listed on an exchange or the OTCQX tier of the OTC Markets;

 

(ii)

1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company executes a contract for a minimum quantity of 25,000 M/T of PTA/EG or a PET;

 

(iii)

1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company's first fill-scale production facility is in commercial operation; and

 

(iv)

1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company's second full-scale production facility is in commercial operation.

 

In lieu of shares, Mr. Solomita may elect to receive options or warrants to purchase the same number of shares.

 

Effective April 10, 2017, the Company qualified to trade on the OTCQX and began trading the same date. Accordingly, 1,000,000 shares of common stock with a fair value of $5,500,000 were considered to be earned and will be issued to Mr. Solomita, and have been reflected as compensation cost in the period ending February 28, 2017.

 

On February 15, 2016, the Company and Mr. Solomita entered into an Amendment No. 1 to Employment Agreement (the "Amendment No. 1"), which amends the Employment Agreement. Amendment No. 1 provides that the Company shall issue Mr. Solomita one share of the Company's Series A Preferred Stock for consideration of Mr. Solomita agreeing not to terminate his employment with the Company for a period of five years from the date of Amendment No. 1 (See Note 6).

 

 
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Table of Contents

 

Note 6 – Stockholders' Equity

 

Series A Preferred Stock

 

On February 15, 2016, the Company and Mr. Solomita entered into an Amendment No. 1 to Employment Agreement (the "Amendment No. 1"), which amends the Employment Agreement. Amendment No. 1 provides that the Company shall issue Mr. Solomita one share of the Company's Series A Preferred Stock for consideration of Mr. Solomita agreeing not to terminate his employment with the Company for a period of five years from the date of Amendment No. 1. The effect of Amendment No. 1 is to provide Mr. Solomita control of the Company in the event that his presently-held 57% of the issued and outstanding shares of common stock of the Company is diluted to less than a majority. In order to issue Mr. Solomita his one share of Series A Preferred Stock under Amendment No. 1, the Company created "blank check" preferred stock. Subsequently, the board of directors of the Company approved a Certificate of Designation creating the Series A Preferred Stock. Subsequently, the Company issued one share of Series A Preferred Stock to Mr. Solomita.

 

The one share of Series A Preferred Stock issued to Mr. Solomita holds a majority of the total voting power so long a Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of common stock of the Company, assuring Mr. Solomita of control of the Company in the event that his presently-held 57% of the issued and outstanding shares of common stock of the Company is diluted to a level below a majority.

 

Additionally, the one share of Series A Preferred Stock issued to Mr. Solomita contains protective provisions, which precludes the Company from taking certain actions without Mr. Solomita's (or that of any person to whom the one share of Series A Preferred Stock is transferred) approval. More specifically, so long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate class:

 

(a) amend the Articles of Incorporation or, unless approved by the Board of Directors, including by the Series A Director, amend the Company's Bylaws;

 

(b) change or modify the rights, preferences or other terms of the Series A Preferred Stock, or increase or decrease the number of authorized shares of Series A Preferred Stock;

 

(c) reclassify or recapitalize any outstanding equity securities, or, unless approved by the Board of Directors, including by the Series A Director, authorize or issue, or undertake an obligation to authorize or issue, any equity securities or any debt securities convertible into or exercisable for any equity securities (other than the issuance of stock-options or securities under any employee option or benefit plan);

 

(d) authorize or effect any transaction constituting a Deemed Liquidation (as defined in this subparagraph) under the Articles, or any other merger or consolidation of the Company;

 

(e) increase or decrease the size of the Board of Directors as provided in the Bylaws of the Company or remove the Series A Director (unless approved by the Board of Directors, including the Series A Director);

 

(f) declare or pay any dividends or make any other distribution with respect to any class or series of capital stock (unless approved by the Board of Directors, including the Series A Director);

 

(g) redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any outstanding shares of capital stock (other than the repurchase of shares of common stock from employees, consultants or other service providers pursuant to agreements approved by the Board of Directors under which the Company has the option to repurchase such shares at no greater than original cost upon the occurrence of certain events, such as the termination of employment) (unless approved by the Board of Directors, including the Series A Director);

 

(h) create or amend any stock option plan of the Company, if any (other than amendments that do not require approval of the stockholders under the terms of the plan or applicable law) or approve any new equity incentive plan;

 

(i) replace the President and/or Chief Executive Officer of the Company (unless approved by the Board of Directors, including the Series A Director);

 

(j) transfer assets to any subsidiary or other affiliated entity (unless approved by the Board of Directors, including the Series A Director);

 

(k) issue, or cause any subsidiary of the Company to issue, any indebtedness or debt security, other than trade accounts payable and/or letters of credit, performance bonds or other similar credit support incurred in the ordinary course of business, or amend, renew, increase or otherwise alter in any material respect the terms of any indebtedness previously approved or required to be approved by the holders of the Series A Preferred Stock (unless approved by the Board of Directors, including the Series A Director);

 

 
F-15
 
Table of Contents

 

(l) modify or change the nature of the Company's business;

 

(m) acquire, or cause a Subsidiary of the Company to acquire, in any transaction or series of related transactions, the stock or any material assets of another person, or enter into any joint venture with any other person (unless approved by the Board of Directors, including the Series A Director); or

 

(n) sell, transfer, license, lease or otherwise dispose of, in any transaction or series of related transactions, any material assets of the Company or any Subsidiary outside the ordinary course of business (unless approved by the Board of Directors, including the Series A Director).

 

Common Stock

 

During the year ended February 28, 2017:

 

(i)

the Company sold 1,275,340 shares of its common stock, and 637,670 warrants to acquire shares of common stock at $3.00 per share resulting in proceeds to the Company of $3,826,016;

 

 

(ii)

204,667 shares of common stock sold in the previous year were issued and reclassified to shares outstanding upon their issuance;

 

 

(iii)

warrants to acquire 200,000 shares of common stock at $0.80 per share were exercised, resulting in proceeds to the Company of $160,000;

 

 

(iv)

the Company issued 38,000 shares upon cash-less exercise of 47,500 warrants;

 

 

(v)

the Company issued 23,166 shares for consulting services at a fair value of $3.00 per share resulting in total expenses of $69,498; and

 

 

(vi)

the Company cancelled 200,000 shares issued the prior year.

 

During the year ended February 29, 2016, the company sold:

 

(i)

2,796,250 shares of its common stock at a price of $.80 per share, resulting in proceeds to the Company of $2,237,000; and

 

(ii)

204,667 shares of its common stock and 102,334, warrants to acquire shares of common stock at $3.00 per share resulting in proceeds to the Company of $614,001. These shares have not yet been issued and have been reflected as common stock issuable on the accompanying statement of stockholders' equity.

 

Warrants

 

The Company has not adopted a formal stock option plan; however, it has made periodic non-plan grants of warrants for services and financing.

 

During the year ended February 29, 2016, the Company issued warrants to purchase 2,220,000 shares of the Company's common stock at an exercise price of $0.80 per share for services. During the year ended February 28, 2017, the Company issued warrants to purchase 75,000 shares of the Company's common stock at an exercise price of $3.00 per share for services. The total fair value of the warrants granted was determined to be $1,398,288.

 

During the years ended February 28, 2017, and February 29, 2016, the Company amortized $135,670, and $404,506 respectively, of these costs which are included in operating expenses. As of February 28, 2017, the unamortized balance of these costs was $394,523. The aggregate intrinsic value of the warrants outstanding as of February 28, 2017, was $5,921,500 calculated as the difference between the closing market price of $5.50 and the exercise price of the Company's warrants as of February 28, 2017.

 

During the year ended February 28, 2017, the Company issued warrants to purchase 637,670 shares of the Company's common stock at an exercise price of $6.00 per share to certain investors upon the sale of 1,275,340 common shares. In addition, 102,334 warrants issued to certain investors during the year ended February 29, 2016, have expired as of the date hereof.


 
F-16
 
Table of Contents

 

The table below summarizes the Company's warrants activities:

 

 

 

Number of

Warrant Shares

 

 

Exercise Price Range Per Share

 

 

Weighted Average Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Balance, February 28, 2015

 

 

-

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

2,322,334

 

 

$

0.80 to $6.00

 

 

 

1.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 29, 2016

 

 

2,322,334

 

 

$

0.80 to $6.00

 

 

$ 1.03

 


Granted

 

 

712,670

 

 

$

3.00 to $6.00

 

 

$ 5.68

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(1,037,500 )

 

$ 0.80

 

 

$ 0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(247,500 )

 

$ 0.80

 

 

$ 0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

(102,334 )

 

$ 6.00

 

 

$ 6.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, February 28, 2017

 

 

1,647,670

 

 

$

0.80 to $6.00

 

 

$ 2.91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earned and exercisable, February 28, 2017

 

 

1,136,420

 

 

$

0.80 to $6.00

 

 

$ 3.73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unvested, February 28, 2017

 

 

511,250

 

 

$

0.80 to $3.00

 

 

$ 1.10

 

 

 
F-17
 
Table of Contents

 

The following table summarizes information concerning outstanding and exercisable warrants as of February 28, 2017:

 

 

 

 

Warrants Outstanding

 

 

Warrants Exercisable

 

Range of

Exercise Prices

 

 

Number

Outstanding

 

 

Average

Remaining

Contractual Life

(in years)

 

 

Weighted

Average

Exercise Price

 

 

Number

Exercisable

 

 

Average

Remaining

Contractual Life

(in years)

 

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

0.80

 

 

 

935,000

 

 

 

0.47

 

 

$ 0.80

 

 

 

492,500

 

 

 

0.47

 

 

$ 0.80

 

$

6.00

 

 

 

637,670

 

 

 

0.77

 

 

$ 6.00

 

 

 

637,670

 

 

 

0.77

 

 

$ 6.00

 

$

3.00

 

 

 

75,000

 

 

 

1.27

 

 

$ 3.00

 

 

 

6,250

 

 

 

1.27

 

 

$ 3.00

 

 

The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

Year ended

February 28,
2017

 

 

Year ended

February 29,
2016

 

Expected life years

 

1 to 2 Years

 

 

1 to 2 Years

 

 

 

 

 

 

 

 

Expected volatility

 

 

122.28 %

 

 

87.99 %

 

 

 

 

 

 

 

 

 

Expected annual rate of quarterly dividends

 

 

0.00 %

 

 

0.00 %

 

 

 

 

 

 

 

 

 

Risk-free rate

 

 

0.91 %

 

 

0.87 %

 

Note 7 –Income Taxes

 

At February 28, 2017, the Company had net operating loss ("NOL") carry-forwards for Federal income tax purposes of approximately $4.6 Million that may be offset against future taxable income through 2036. No tax benefit has been reported with respect to these net operating loss carry-forwards because the Company believes that the realization of the Company's net deferred tax assets of approximately $1.6 Million was not considered more than likely than not and accordingly, the potential tax benefits for the net loss carry-forwards are offset by a full valuation allowance.

 

Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding the probability of its realization.


 
F-18
 
Table of Contents

 

Components of deferred tax assets in the consolidated balance sheet are as follows:

 

 

 

February 28,

2017

 

 

February 29,

2016

 

Net deferred tax assets – non current:

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected income tax benefit from NOL carry-forwards

 

$ 1,614,449

 

 

$ 367,196

 

 

 

 

 

 

 

 

 

 

Less valuation allowance

 

 

(1,614,449 )

 

 

(367,196 )

 

 

 

 

 

 

 

 

 

Deferred tax assets, net of valuation allowance

 

$ -

 

 

$ -

 

 

Income Tax Provision in the Consolidated Statements of Operations and Comprehensive Loss:

 

Reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows:

 

 

 

For the year
ended
February 28,

2017

 

 

For the year
ended
February 29,

2016

 

Federal statutory income tax rate

 

 

35.0 %

 

 

35.0 %

 

 

 

 

 

 

 

 

 

Change in valuation allowance on net operating loss carry-forwards

 

 

(35.0 )

 

 

(35.0 )

 

 

 

 

 

 

 

 

 

Effective income tax rate

 

 

0.0 %

 

 

0.0 %

 

Note 8 – Commitments and Contingencies

 

Leases

 

The Company leases its premises and other assets under various operating leases. Future lease payments aggregate $132,274 as at February 28, 2017 and include the following future amounts payable:

 

Year ended

 

 

 

February 2018

 

$ 113,378

 

February 2019

 

 

18,896

 

 

 

 

 

 

Total

 

$ 132,274

 

 

 
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Note 9 – Geographic Information

 

As of February 28, 2017, and February 29, 2016, the Company had two reportable diverse geographical concentrations, the United States and Canada. Information related to these operating segments, net of eliminations, consists of the following for the periods below:

 

 

 

Year ended February 28, 2017

 

 

 

 

 

 

United States

 

 

Canada

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Cost of revenue

 

 

-

 

 

 

-

 

 

 

-

 

General and administrative

 

 

6,309,842

 

 

 

670,439

 

 

 

6,980,281

 

Research and development

 

 

584,461

 

 

 

869,979

 

 

 

1,454,440

 

Depreciation and amortization

 

 

97,304

 

 

 

300,141

 

 

 

397,445

 

Foreign exchange loss (gain)

 

 

-

 

 

 

(18,165 )

 

 

(18,165 )

Loss from operations

 

$ 6,991,607

 

 

$ 1,822,394

 

 

$ 8,814,001

 

 

 

 

 

As at February 28, 2017

 

 

 

 

 

 

United States

 

 

Canada

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$ 687,899

 

 

 

487,885

 

 

$ 1,175,784

 

Property and equipment, net

 

 

157,394

 

 

 

1,409,575

 

 

 

1,566,969

 

Intangible assets, net

 

 

308,000

 

 

 

-

 

 

 

308,000

 

Total assets

 

$ 1,153,293

 

 

 

1,897,460

 

 

$ 3,050,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$ 428,714

 

 

 

484,517

 

 

$ 913,231

 

Equity

 

 

2,994,003

 

 

 

(856,481 )

 

 

2,137,522

 

Total liabilities and equity

 

$ 3,422,717

 

 

 

(371,964 )

 

$ 3,050,753

 

 

 

 

 

Year ended February 29, 2016

 

 

 

 

 

 

United States

 

 

Canada

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

$ -

 

Cost of revenue

 

 

-

 

 

 

-

 

 

 

-

 

General and administrative

 

 

1,357,728

 

 

 

390,316

 

 

 

1,748,044

 

Research and development

 

 

274,132

 

 

 

527,534

 

 

 

801,666

 

Depreciation and amortization

 

 

71,683

 

 

 

140,162

 

 

 

211,845

 

Cost of reverse merger

 

 

60,571

 

 

 

-

 

 

 

60,571

 

Foreign exchange loss (gain)

 

 

-

 

 

 

14,240

 

 

 

14,240

 

Loss from operations

 

$ 1,764,114

 

 

$ 1,072,252

 

 

$ 2,836,366

 

 

 

 

 

As at February 29, 2016

 

 

 

 

 

 

United States

 

 

Canada

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$ 455,393

 

 

$ 256,363

 

 

$ 711,756

 

Property and equipment, net

 

 

158,413

 

 

 

1,240,941

 

 

 

1,399,354

 

Intangible assets, net

 

 

371,579

 

 

 

-

 

 

 

371,579

 

Total assets

 

$ 985,385

 

 

$ 1,497,304

 

 

$ 2,482,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$ 182,673

 

 

$ 882,538

 

 

$ 1,065,211

 

Equity

 

 

2,702,980

 

 

 

(1,285,502 )

 

 

1,417,478

 

Total liabilities and equity

 

$ 2,885,653

 

 

$ (402,964 )

 

$ 2,482,689

 

 

 
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Note 10 – Subsequent Events

 

Employment agreement

 

D. Jennifer Rhee

 

On March 17, 2017, we entered into an Employment Agreement (the “ Rhee Employment Agreement ”) with an effective date of April 3, 2017 with D. Jennifer Rhee, our Chief Financial Officer.

 

Pursuant to the Rhee Employment Agreement, Ms. Rhee receives an annual base salary of $300,000 for her first two years of employment. The Rhee Employment Agreement also requires that Ms. Rhee participate in our employee benefit programs and provide for other customary benefits.

 

Subject to approval of our board of directors, Ms. Rhee may receive a warrant to purchase up to 400,000 shares of our common stock, which warrant vests quarterly, in equal amounts, over 24 months beginning on April 3, 2017 and a warrant to purchase up to 150,000 shares of our common stock that will vest when certain milestones are achieved. The term of such warrants would be subject to the determination of our board of directors. In the event there is a “change of control” (as such term is defined in the Rhee Employment Agreement), the warrants, if issued, shall immediately vest.

 

Issuance of common shares

 

On May 4, 2017, the Board of Directors approved the issuance and sale of 1,123,266 shares of the Corporation's common stock, par value $.0001 per share at an offering price of $5.25 per share, for gross proceeds of $5,897,188. As of the filing date, the Company had received total proceeds which will be used for working capital and general corporate purposes principally.

 

The shares issued to investors were not registered under the Securities Act of 1933, as amended (the “Act”), in reliance upon the private offering safe harbor provision of Rule 506 of Regulation D.

 

The following table sets forth the condensed consolidated balance sheet of the Company as of February 28, 2017 on an as reported basis and on an unaudited pro forma basis, after giving effect to the sale of the shares:


 

 

Actual –

As Reported

 

 

Pro Forma –

As Adjusted

 

 

 

 

 

 

(Unaudited) 

 

ASSETS

 

 

 

 

 

 

Total current assets

 

$ 1,175,784

 

 

$ 7,072,972

 

Total assets

 

$ 3,050,753

 

 

$ 8,947,941

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Total liabilities

 

 

913,231

 

 

 

913,231

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Series A Preferred stock par value $0.0001; 25,000,000 shares authorized; one share issued and outstanding

 

 

-

 

 

 

-

 

Common stock par value $0.0001: 250,000,000 shares authorized; 31,451,973 and 32,575,239 shares issued and outstanding, respectively

 

 

3,146

 

 

 

3,258

 

Additional paid-in capital

 

 

8,723,390

 

 

 

14,620,466

 

Common stock issuable, 1,000,000 shares at February 28, 2017

 

 

5,500,000

 

 

 

5,500,000

 

Accumulated deficit

 

 

(11,937,803 )

 

 

(11,937,803 )

Accumulated other comprehensive (loss) gain

 

 

(151,211 )

 

 

(151,211 )

Total stockholders' equity

 

 

2,137,522

 

 

 

8,034,710

 

Total liabilities and stockholders' equity

 

$ 3,050,753

 

 

8,947,941

 

 

The Company performed an evaluation of subsequent events through the date of filing of these financial statements with the SEC, noting no other items requiring disclosure.

 

 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and the Chief Financial Officer, we are responsible for conducting an evaluation of the effectiveness of the design and operation of our internal controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the fiscal year covered by this report. Disclosure controls and procedures means that the material information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective as of February 28, 2017.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

As of February 28, 2017, management assessed the effectiveness of our internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP in the United States of America and includes those policies and procedures that:

 

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
· Provide reasonable assurance our transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statement.

 

Our Chief Executive Officer and Chief Financial Officer have performed an evaluation of our internal control over financial reporting under the framework in Internal Control-Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective at February 28, 2017.

 

Based on the results of its assessment, our management concluded that although there were few formalized procedures around financial reporting, given the small size of the company and the relatively simple nature of the transactions in the absence of any revenues, it believes that there were sufficient controls in the form of oversight by the Chief Executive Officer, the Chief Financial Officer and the board of directors to address these risks. Additionally, many improvements were made during the year as additional resources were engaged to ensure that internal control over financial reporting was generally effective.

 

 
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Material Weakness Discussion and Remediation

 

We believe that the consolidated financial statements included in this Annual Report on Form 10-K for the year ended February 28, 2017, fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

 

Remediation efforts were initiated during the fiscal year ended February 28, 2017, including the appointment of additional independent members to our board of directors and the establishment of an audit committee, redesigning our internal controls and procedures, improving our financial statement closing process, as well as the hiring of a new Chief Financial Officer.

 

We intend to continue to take steps to make necessary improvements to our internal control over financial reporting, including:

 

· Continuing to update the documentation and communication of our internal control processes, including implementing formal risk assessment processes; and
· Engaging third party Sarbanes-Oxley consultants to assist us in addressing any other controls and process gaps, in particular ensuring our processes anticipate and provide for increased complexity and needs as we grow.

 

We believe that the measures described above will strengthen our internal control over financial reporting. We expect that our efforts, including design, implementation and testing will continue throughout fiscal year 2018.

 

Changes in Internal Control over Financial Reporting

 

As described above under “Material Weakness Discussion and Remediation,” we have undertaken a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting. These remedial procedures continued throughout the reporting period and through May 11, 2017.

 

Inherent Limitation on the Effectiveness of Internal Controls

 

The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 
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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth, as of May 11, 2017, the names and ages of our directors and executive officers, the principal offices and positions held by each person, and the year such director or officer commenced serving in such capacity:

 

Name

Age

Positions

Daniel Solomita

41

President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors

Donald Danks

59

Director

Brian Young

50

Director

Jay Stubina

55

Director

D. Jennifer Rhee (1)

51

Chief Financial Officer

_______

(1) Appointed Chief Financial Officer effective April 3, 2017.

 

Daniel Solomita

President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors

 

Daniel Solomita has served as our President and Chief Executive Officer, Secretary, Treasurer and Chairman of the Board of Directors since 2015. Mr. Solomita has been involved in the plastic recycling business since 2009, focusing on developing landfill remediation projects across North America, working with companies such as Invista, Du Pont, and Ascend Performance Materials. Mr. Solomita has also served as the President, Secretary, Treasurer and sole Director of Loop Holdings, Inc. from 2014 to March 2017, when Loop Holdings, Inc. merged with and into our Company. From 2010 until 2014, Mr. Solomita served as President of Dragon Polymers. Since 2012, Mr. Solomita has owned and operated, a plastics trading business, 8198381 Canada Inc., which does business as “SMH Recycling”, working with companies from Vietnam, Hong Kong, Germany and China. Mr. Solomita attended Dawson College, in Quebec, Canada, where he obtained a degree in Business Administration and 1996, he attended Concordia University, where he studied Management Information Systems and obtained a degree in Microsoft System Engineering and Veritas Backup Architecture. Mr. Solomita’s knowledge of and career at Loop Holdings led to our conclusion that he should serve as a director in light of our business and structure.

 

Donald Danks

Director

 

Donald Danks has served as a member of our Board of Directors since 2015. Mr. Danks has been a managing member of Touchstone LLC, an investment firm, since 2010. Mr. Danks was also a cofounder and served as the CEO of iMergent, Inc., an ecommerce software company listed on the AMEX, from January 2001 through November 2008. From 1995 to 1997, Mr. Danks was the cofounder and President of Prosoft Training, Inc., a NASDAQ listed company involved in Internet technology training, education and certification. From 1986 to 1994, Mr. Danks was the founder, and held various management positions, including chairman and CEO, of Advantage Life Products, a NASDAQ SmallCap company. Since 2014, Mr. Danks has been a director of Trilogy PetroSource Inc., a private company, and a director at Fanattac Inc., a private company. Mr. Danks holds a B.S. in Kinesiology from UCLA. Mr. Danks’ knowledge of and experience in creating, developing, funding, managing and growing startup and early stage companies led to our conclusion that he should serves as director in light of our business and structure.

 

Brian Young

Director

 

Brian Young has served as a member of our Board of Directors since 2016. Mr. Young currently serves as Vice President of Reboxcorp, a leading reused corrugated boxes company, where he has been employed since 1991. At Reboxcorp, Mr. Young has been involved in the conception and execution of numerous mergers, acquisitions, and financings. Mr. Young holds a Bachelor of Commerce degree from Concordia University, of Montreal, Canada. Mr. Young's knowledge of and experience in the reused corrugated boxes business and his experience in mergers, acquisitions, and financings led to our conclusion that he should serve as a director in light of our business and structure.

 

 
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Jay Stubina

Director

 

Jay Stubina has served as a member of our Board of Directors since 2016. In 1998, Mr. Stubina co-founded Continent8 Technologies, where he is currently responsible for company operations and sales. Continent8 Technologies operates data centers in Europe, North America and Asia. Mr. Stubina holds a Bachelor of Commerce degree, with a major in Accountancy, from Concordia University, of Montreal, Canada. Mr. Stubina obtained a Chartered Accountant certificate from McGill University, and maintains a Chartered Professional Accountant license in Canada. Mr. Stubina’s knowledge of and experience in finance, technology implementation in businesses and data management led to our conclusion that he should serve as a director in light of our business and structure.

 

D. Jennifer Rhee

Chief Financial Officer

 

D. Jennifer Rhee has served as our Chief Financial Officer since April 2017. Ms. Rhee served as a partner with Richter LLP, a financial advisory services firm from 2007 to April 2017, and has previously worked at Richter LLP in other capacities since 2003. Ms. Rhee has practiced in the areas of international taxation and transfer pricing and was responsible for creating and building the firm’s transfer pricing practice. Ms. Rhee has also assumed leadership roles within the firm, including the expansion of the firm’s presence in the Toronto market, chair of the firm’s marketing committee, a member of the firm’s nominating committee as well as a member of the firm’s board of directors. Ms. Rhee holds a Bachelor of Commerce from McGill University and is a CPA, CA with the Canadian Order of Chartered Professional Accountants.

 

Director Qualifications

 

We believe that our directors should have the highest professional and personal ethics and values, consistent with our values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, age and skills, including financial literacy and experience in the context of our needs and the needs of the Board.

 

Significant Employees and Consultants

 

As of February 28, 2017, Daniel Solomita and Cesar Contla are our sole significant employees. We currently have no significant independent contractors or consultants.

 

Family Relationships

 

There are no other family relationships among any of our directors or executive officers and any other directors or executive officers.

 

Code of Ethics

 

On January 25, 2017, our Board approved and adopted a Code of Ethics (the “Code of Ethics”) that applies to all of our directors, officers, and employees, including our principal executive officer and principal financial officer. The Code of Ethics addresses such individuals’ conduct with respect to, among other things, conflicts of interests; compliance with applicable laws, rules, and regulations; full, fair, accurate, timely, and understandable disclosure by us; competition and fair dealing; corporate opportunities; confidentiality; insider trading; protection and proper use of our assets; fair treatment; and reporting suspected illegal or unethical behavior. The Code of Ethics is available on our website at http://www.loopindustries.com/assets/docs/Code_of_Ethics.pdf. The information contained on, or that can be accessed through, our website is not a part of this Annual Report on Form 10-K. We will disclose on our website any amendments to or waivers from any provision of the Code of Ethics that applies to any of the directors or executive officers.

 

 
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Term of Office

 

With the exception of Brian Young, as noted below, our directors are appointed to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our By-laws. Our officers are appointed by our Board and hold office until removed by the Board, absent an employment agreement.

 

Brian Young’s term as a member of our Board of Directors expires on May 23, 2018.

 

Section 16(A) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Based solely upon our review of certain reports files with the SEC with respect to Section 16(a) of the Exchange Act, the reports that were required to be filed with respect to transactions in our common stock during the fiscal year ended February 27, 2017 were timely except each of D. Jennifer Rhee, Jay Stubina, Brian Young and Donald Danks failed to timely file an initial Form 3 and Daniel Solomita failed to timely file Form 4s reflecting share issuances in 2016. Ms. Rhee filed a Form 3 on April 20, 2017.

 

Conflicts of Interest

 

As discussed in more detail below, we did not have an audit committee comprised of independent directors until January 27, 2017, and we currently do not have compensation or nominating committee. Therefore, the functions that would have been performed by such committees were performed by our directors. Prior to January 27, 2017, our Board was comprised of four directors, with three of such directors qualifying as “independent” pursuant to the rules of The NASDAQ Stock Market, LLC and the SEC, and all such directors performed the functions of the audit, compensation, and nominating committees. Thus, prior to January 27, 2017, there was a potential conflict of interest in that our directors and officers had the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions.

 

Audit Committee and Audit Committee Financial Expert

 

On January 27, 2017, the Board established the Audit Committee and approved and adopted a charter (the “Audit Committee Charter”) to govern the Audit Committee. Mr. Stubina was appointed to serve on the Audit Committee. In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of the Audit Committee is to assist the Board in its general oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee Charter can be found online at http://www.loopindustries.com/assets/docs/Audit_Committee_Charter.pdf. The information contained on, or that can be accessed through, our website is not a part of this Annual Report on Form 10-K.

 

Compensation Committee Interlocks and Insider Participation

 

No interlocking relationship exists between the members of our Board of Directors and between the Board of Directors and compensation committee of any other company, nor has any interlocking relationship existed in the past.

 

Stockholder Communications with the Board of Directors

 

We have not implemented a formal policy or procedure by which our stockholders can communicate directly with our Board of Directors. Nevertheless, every effort has been made to ensure that the views of stockholders are heard by the Board of Directors or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner. We believe that we are responsive to stockholder communications, and therefore have not considered it necessary to adopt a formal process for stockholder communications with our Board. During the upcoming year, our Board will continue to monitor whether it would be appropriate to adopt such a process.

 

 
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Indemnification Agreements

 

Each of our officers and directors have entered into an indemnification agreement, pursuant to which we have agreed to indemnify each such person for claims against each of them that may arise in connection with the performance of their respective duties as an officer or director.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following tables set forth certain information about compensation paid, earned or accrued for services by our President and all other executive officers (collectively, the “Named Executive Officers”) in the fiscal years ended February 28, 2017 and February 29, 2016:

 

Management Changes since the end of our last completed fiscal year

 

Mr. Contla served as our Chief Financial Officer and Principal Financial and Accounting Officer until April 3, 2017, at which time Ms. D. Jennifer Rhee became our Chief Financial Officer and Principal Financial and Accounting Officer.

 

SUMMARY COMPENSATION TABLE

 

Process and Procedures for Compensation Decisions

 

The decisions with respect to our fiscal year 2017 executive officer compensation, including the compensation of our named executive officers, were made by the Chief Executive Officer in consultation with our Board (except with respect to his own compensation). Going forward, the Board makes the final decisions with respect to all executive officer compensation decisions.

 

Summary Compensation Table

 

The following table provides information relating to compensation for our Named Executive Officers for the fiscal years ended February 28, 2017 and February 29, 2016.

 

Name and Principal Position

 

Year

 

Salary

($)

 

 

Stock
Awards

($)(2)

 

 

Option
Awards

($)

 

 

All Other Compensation

($)

 

 

Total

($)

 

Daniel Solomita

 

2017

 

$ 180,000

 

 

$ 5,500,000

 

 

$

 

 

$ 19,500

 

 

$ 5,699,500

 

President, Chief Executive Officer, and Chairman of the Board

 

2016

 

$ 180,000

 

 

$

 

 

$

 

 

$

 

 

$ 180,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cesar Contla (1)

 

2017

 

$ 48,299

 

 

$

 

 

$ 183,000

 

 

$

 

 

$ 231,299

 

Chief Financial Officer

 

2016

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

__________

(1)

Served as Chief Financial Officer from July 5, 2016 until to April 3, 2017, and currently serves a Corporate Finance Controller, a non-executive officer position.

(2)

For valuation purposes, the dollar amount shown represents the aggregate award date fair value of awards made in fiscal years ended February 28, 2017 and February 29, 2016 computed in accordance with FASB ASC Topic 718, “Stock Compensation”. The fair value is calculated based on the closing price of the common stock on the grant dates. The number of shares granted, the grant date, and the market price of such shares for each Named Executive Officer is set forth below.

 

 
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Narrative Disclosure to Summary Compensation Table

 

The following is a narrative discussion of the information that we believe is necessary to understand the information disclosed in the foregoing Summary Compensation Table with respect to the fiscal years ended February 28, 2017 and February 29, 2016.

 

Compensatory Plan

 

We did not have a stock option plan or an incentive plan that provides compensation intending to serve as an incentive for performance during the fiscal years ended February 28, 2017 and February 29, 2016.

 

Executive Officer Employment Contracts and Payments upon Termination or Change-in-Control

 

Daniel Solomita

 

On June 29, 2015, we entered into an Employment Agreement (the “Solomita Employment Agreement”) with no term, with Daniel Solomita, our President and Chief Executive Officer. On February 15, 2016, we and Mr. Solomita entered into an amendment to the Solomita Employment Agreement, pursuant to which, we issued Mr. Solomita one share of our Series A Preferred Stock in exchange for Mr. Solomita agreeing not to terminate his employment with us for a period of five years from the date of the amendment.

 

Pursuant to the Solomita Employment Agreement, Mr. Solomita receives an annual base salary of $180,000. The Solomita Employment Agreement also provides that (i) Mr. Solomita may become eligible to receive a bonus of up to 4,000,000 shares of our common stock, as further described below, (ii) Mr. Solomita will be entitled to receive an annual bonus pursuant to a unique or general plan established by us, (iii) we shall pay Mr. Solomita’s costs related to Mr. Solomita’s reasonable monthly cell phone, other mobile Internet costs, and home office Internet costs, and (iv) we shall pay Mr. Solomita’s car and commuting costs and club membership costs.

 

The aforementioned bonus of 4,000,000 shares of our common stock is payable to Mr. Solomita as follows:

 

(i) 1,000,000 shares of common stock shall be issued to Mr. Solomita when our securities are listed on an exchange or the OTCQX tier of the OTC Markets, which occurred on April 10, 2017;

 

(ii) 1,000,000 shares of common stock shall be issued to Mr. Solomita when we execute a contract for a minimum quantity of 25,000 MT of PTA/MEG or a PET;

 

(iii) 1,000,000 shares of common stock shall be issued to Mr. Solomita when our first full-scale production facility is in commercial operation; and

 

(iv) 1,000,000 shares of common stock shall be issued to Mr. Solomita when our second full-scale production facility is in commercial operation.

 

In lieu of shares, Mr. Solomita may elect to receive options or warrants to purchase the same number of shares.

 

 
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The Solomita Employment Agreement also requires that Mr. Solomita participate in our employee benefit programs and provides for other customary benefits. In addition, the Solomita Employment Agreement provides compensation pursuant periodic grants of stock options thereafter as recommended by our board of directors.

 

In the event of a “Change of Control” (as defined in the Solomita Employment Agreement), all of Mr. Solomita’s unvested options, shares, or other equity will immediately vest and Mr. Solomita will be entitled to a one time lump sum payment equal to 12 months of his then-current base salary.

 

If Mr. Solomita’s employment is terminated by us or a successor entity without “Cause” or by Mr. Solomita’s “Resignation for Good Reason” prior to a Change of Control or more than 12 months following a Change of Control, Mr. Solomita will receive: (i) continued payment of his base salary for a period equal to 24 months plus an additional month per completed year of service, to a maximum of 36 months (the “Salary Continuance Period”), (ii) continued benefit coverage (including, if applicable, reimbursement of his premium cost for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or the California Continuation of Benefits Replacement Act of 1997, as amended, whichever is applicable) for the lesser of the Salary Continuance Period or that number of months until Mr. Solomita becomes eligible for reasonably comparable benefits under any future employer’s health insurance plan; (iii) payment of 100% of Mr. Solomita’s then-current discretionary cash bonus at target and payment of such bonus at target for the Salary Continuation Period; (iv) accelerated vesting as to 50% of his then-unvested option shares if any, and (v) reimbursement for up to $10,000 of expenses incurred in obtaining new employment, provided Mr. Solomita submits evidence that is satisfactory to us that the amount involved was expended and related to obtaining new employment.

 

If Mr. Solomita’s employment is terminated by us or a successor entity without “Cause” or by Mr. Solomita’s “Resignation for Good Reason” within 12 months following a Change of Control, Mr. Solomita will receive: (i) continued payment of his base salary for a period equal to 18 months plus an additional month per completed year of service, to a maximum of 24 months (the “Extended Salary Continuance Period”), (ii) continued benefit coverage (including, if applicable, reimbursement of his premium cost for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or the California Continuation of Benefits Replacement Act of 1997, as amended, whichever is applicable) for the lesser of the Extended Salary Continuance Period or that number of months until Mr. Solomita becomes eligible for reasonably comparable benefits under any future employer’s health insurance plan; (iii) payment of 150% of Mr. Solomita’s then-current discretionary cash bonus at target and payment of such bonus at target for the Extended Salary Continuation Period; (iv) accelerated vesting as to 100% of his then-unvested option shares if any, and (v) reimbursement for up to $20,000 of expenses incurred in obtaining new employment, provided Mr. Solomita submits evidence that is satisfactory to us that the amount involved was expended and related to obtaining new employment.

 

For the purposes of the Solomita Employment Agreement, “Cause” means any grounds entitling the Board to summarily dismiss Mr. Solomita.

 

For purposes of the Solomita Employment Agreement, “Resignation for Good Reason” means, Mr. Solomita’s resignation as a result of, and within 30 days following, (i) a change in Mr. Solomita’s position such that he is not a corporate officer of the company (or a successor company in the event of a Change of Control), (ii) a significant and substantial reduction in Mr. Solomita’s job, duties, or responsibilities in a manner that is substantially and materially inconsistent with the position, duties, or responsibilities held by Mr. Solomita immediately before such reduction, (iii) any reduction in Mr. Solomita’s base salary other than in connection with and consistent with a general reduction of all officer base salaries; or (iv) a relocation of Mr. Solomita’s work location to a location more than 50 kilometers away from the current location provided such change increases Mr. Solomita’s commute by 25 kilometers or 30 minutes.

 

The Solomita Employment Agreement prohibits Mr. Solomita from engaging in certain activities which compete with us, seeking to recruit its employees or disclosing any of its trade secrets or otherwise confidential information. The foregoing description of the Solomita Employment Agreement is a summary and is qualified in its entirety by the text of the Solomita Employment Agreement, as amended, a copy of which is as an exhibit to this Annual Report on Form 10-K.

 

 
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D. Jennifer Rhee

 

On March 17, 2017, we entered into an Employment Agreement (the “Rhee Employment Agreement”) with an effective date of April 3, 2017 and with no term, with D. Jennifer Rhee, our Chief Financial Officer.

 

Pursuant to the Rhee Employment Agreement, Ms. Rhee receives an annual base salary of $300,000 for her first two years of employment, and her salary will be reviewed after the first two years of her employment. The Rhee Employment Agreement also requires that Ms. Rhee participate in our employee benefit programs and provides for other customary benefits.

 

Pursuant to the Rhee Employment Agreement, Ms. Rhee received a warrant to purchase up to 400,000 shares of our common stock at a strike price of $5.25 per share, which warrant vests quarterly, in equal amounts, over 24 months beginning on April 3, 2017 and a warrant to purchase up to 150,000 shares of our common stock at a strike price of $5.25 per share that will vest when certain milestones are achieved. In the event there is a “change of control” (as such term is defined in the Rhee Employment Agreement), the warrants, together with any other equity, shall immediately vest.

 

If Ms. Rhee’s employment is terminated by us or a successor entity without “Cause” or by Ms. Rhee’s “Resignation for Good Reason”, Ms. Rhee will receive continued payment of her base salary for a period equal to the greater of six months and one month per completed year of service.

 

For the purposes of the Rhee Employment Agreement, “Cause” means a serious reason pursuant to Article 2094 of the Civil Code of Quebec, which shall include specified conditions described in the Rhee Employment Agreement. For purposes of the Rhee Employment Agreement, “Resignation for Good Reason” means, Ms. Rhee’s resignation as a result of, and within 30 days following, (i) a significant and substantial reduction in Ms. Rhee’s job, duties, or responsibilities in a manner that is substantially and materially inconsistent with the position, duties, or responsibilities held by Ms. Rhee immediately before such reduction, (ii) any reduction in Ms. Rhee’s base salary other than in connection with and consistent with a general reduction of all officer base salaries; or (iii) a relocation of Ms. Rhee’s work location to a location more than 50 kilometers away from the current location provided such change increases Ms. Rhee’s commute by 25 kilometers or 30 minutes. In each case, Ms. Rhee shall give written notice to the Company of such event and allow the Company a reasonable cure period.

  

The Rhee Employment Agreement prohibits Ms. Rhee from engaging in certain activities which compete with us, seeking to recruit its employees or disclosing any of its trade secrets or otherwise confidential information. The foregoing description of the Rhee Employment Agreement is a summary and is qualified in its entirety by the text of the Rhee Employment Agreement, a copy of which will be filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended May 31, 2017.

 

Other Employee Benefits and Perquisites and Retirement Plans

 

We offer a number of other benefits to our employees, including our executive officers, including vacation, medical, dental and vision insurance, long-term and short-term disability insurance, and life and accidental death and dismemberment insurance.

 

DIRECTOR COMPENSATION

 

There was no director compensation for the fiscal year ended February 28, 2017.

 

 
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information as of May 11, 2017 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each Named Executive Officer, (2) each current director; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the company, at the address of 480 Fernand Poitras, Terrebonne, Quebec, Canada J6Y 1Y4.

 

In computing the number and percentage of shares beneficially owned by each person, we include any shares of common stock that could be acquired within 60 days of May 11, 2017 by the conversion or exercise of shares of Series A Preferred Stock or warrants. These shares, however, are not counted in computing the percentage ownership of any other person. As of May 11, 2017, there were 32,595,173 shares of our common stock outstanding.

  

Name and Address of Beneficial Owner

 

Shares of

Common

Stock

 

 

Percent of

Common

Stock

 

 

Shares of

Series A

Preferred

Stock

 

 

Percent of

Preferred

Stock

 

 

Voting

Shares

 

 

Percent of

Voting

Shares

 

Daniel Solomita (1)

 

 

18,600,000

 

 

 

57.06 %

 

 

1

 

 

 

100 %

 

 

60,533,893

 

 

 

81.22 %

Donald Danks (2)

 

 

1,404,000

 

 

 

4.31 %

 

 

-

 

 

 

-

 

 

 

1,404,000

 

 

 

1.88 %

Brian Young (3)

 

 

206,660

 

 

*

 

 

 

-

 

 

 

-

 

 

 

206,660

 

 

*

 

Jay Stubina (4)

 

 

75,000

 

 

*

 

 

 

-

 

 

 

-

 

 

 

75,000

 

 

*

 

Cesar Contla (5)

 

 

12,500

 

 

*

 

 

 

-

 

 

 

-

 

 

 

12,500

 

 

*

 

All Directors and Executive Officers as a Group (6 persons) (6)

 

 

20,348,100

 

 

 

62.31 %

 

 

1

 

 

 

100 %

 

 

62,281,993

 

 

 

83.50 %
____________

*

Represents beneficial ownership of less than one percent of the outstanding shares of our common stock.

(1)

For so long as Mr. Solomita holds not less than 7.5% of the issued and outstanding shares of our common stock, the share of Series A Preferred Stock shall have a majority of the voting power which is equal to 41,933,893 voting shares as of May 11, 2017.

(2)

Comprises of (i) 854,000 held by the Danks Family Trust, (ii) 500,000 shares held by The Entrust Group FBO Donald Linn Danks IRA 7230012473, (iii) 25,000 shares held by Aaron Danks and (iv) 25,000 shares held by Andrew Danks.

(3)

Includes 200,000 shares held by 912820 Canada Inc., a corporation duly formed and existing under the laws of Canada and controlled by Brian Young.

(4)

Comprises of 75,000 shares of our common stock held by Jay Stubina, 6337708 Canada Inc., a corporation duly formed and existing under the laws of Canada and controlled by Jay Stubina.

(5)

Includes 12,500 shares of common stock underlying a warrant that is exercisable within 60 days of May 11, 2017.

(6)

Includes 62,500 shares of common stock underlying warrants that are exercisable within 60 days of May 11, 2017.

 

 
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

Except as described below, during the past fiscal year, there have been no transactions, whether directly or indirectly, between us and any of our respective officers, directors, beneficial owners of more than 5% of our outstanding common stock or their family members, that exceeded the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years.

 

Essaddam Assignment

 

On October 27, 2014, we entered into an Intellectual Property Assignment Agreement with Hatem Essaddam and Daniel Solomita, our President and Chief Executive Officer, Chairman of the Board of Directors, and majority stockholder, whereby Mr. Essaddam sold the depolymerization technology underlying our business to us. This agreement was supplemented by that certain Addendum to the Intellectual Property Assignment Agreement signed on April 1, 2015 and an Assignment and Moral Rights Waiver signed by 9319-7218 Quebec Inc. and Mr. Essaddam. Pursuant to the Intellectual Property Assignment Agreement, a technique relating to depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure and related intellectual property rights was sold to us for an aggregate consideration of up to CDN$1.3 million, of which we have currently paid CDN$0.5 million.

 

Subscription Agreement

 

On May 22, 2015, we accepted a subscription agreement from 9121820 Canada Inc., a corporation duly formed and existing under the laws of Canada and controlled by Brian Young, a member of our Board of Directors, whereby 9121820 Canada Inc. offered to purchase a warrant to 200,000 shares of our common stock at an exercise price of $0.80 per share and having a term of two years from the date of issuance. Pursuant to the subscription agreement, we agreed to issue to 9121820 Canada Inc. additional warrants to purchase 80,000 shares of common stock upon the same terms as the original warrant for each introduction that leads to a business relationship whereby we sell or purchase, as the case may be, a minimum of 30,000 metric tons of PTA, MEG or PET resin or waste PET scrap. Additionally, the subscription agreement provides for certain registration rights for the shares of common stock underlying the warrants issued thereunder. As of May 11, 2017, no such additional warrants have been issued.

 

Master Services Agreement

 

On September 1, 2015, Loop Holdings entered into a Master Services Agreement with 8198381 Canada Inc., a corporation duly formed and existing under the laws of Canada and beneficially owned and controlled by Mr. Solomita (“8198381 Canada”), to perform on a cost-plus basis certain research and development services, including but not limited to designing and engineering production facilities, equipment testing, completing a cost reduction assessment of chemical processes, and testing product purity. The term of the agreement is five years.

 

Purchase and Sale Agreement

 

On December 31, 2016, 8198381 Canada entered into a purchase and sale agreement to transfer to Loop Canada Inc., a corporation duly formed and existing under the laws of Canada (f/k/a 9449507 Canada Inc.) (“Loop Canada”), all assets and liabilities pertaining to our business of depolymerizing plastics for the assumption of $2.5 million in liabilities, including employees and operations and the aforementioned Master Services Agreement. Loop Canada was a wholly-owned subsidiary of Loop Industries since November 11, 2016 and, following the March 9, 2017 merger of Loop Holdings with and into Loop Industries, Inc., has become our sole subsidiary.

 

 
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Advances from Majority Stockholder

 

Mr. Solomita or companies controlled by him has made advances to us to finance its operations. The amounts due to these entities as of February 28, 2017 and February 29, 2016 were $0.4 million and $0.5 million, respectively. The advances were unsecured, non-interest bearing with no formal terms of repayment. All outstanding amounts were settled and repaid between April 20, 2017 and May 4, 2017, and as of May 11, 2017, there were no remaining outstanding balances owed to Mr. Solomita or companies controlled by him.

 

Director Independence

 

Our Board is currently composed of four members. Our common stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director independence standards. However, we have determined that two of the four directors, Donald Danks and Jay Stubina, qualify as an independent director. We evaluated independence in accordance with Rule 5605 of the NASDAQ Stock Market.

 

The Board currently has one separately designated standing committee, that being the Audit Committee. The Audit Committee is solely comprised of an independent director, Jay Stubina.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table presents fees paid or to be paid for professional audit services rendered by Weinberg & Company, P.A. (“Weinberg & Company”) for the audit of our annual financial statements for the years ended February 28, 2017 and February 29, 2016 and fees billed for other services rendered by Weinberg & Company:

 

 

 

Year Ended

 

 

 

February 28,

2017

 

 

February 29,

2016

 

 

 

 

 

 

 

 

Audit Fees (1)

 

$ 87,708

 

 

$ 46,250

 

Audit-Related Fees

 

 

 

 

 

 

 

 

Tax Fees

 

 

14,249

 

 

 

--

 

All Other Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total All Fees

 

$ 101,957

 

 

$ 46,250

 

____________

(1)

Audit Fees consisted of fees billed for professional services rendered for the audit of the company’s annual financial statements.

 

 
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PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

 

(a) (1) Financial Statements.
 

The response to this portion of Item 15 is set forth under Item 8 above.
 

(a) (2) Financial Statement Schedules.
 

All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto set forth under Item 8 above.

 
(a) (3) Exhibits.

 

The following Exhibits, as required by Item 601 of Regulation SK, are attached or incorporated by reference, as stated below.

 

Exhibit Index

 

 

Incorporated by Reference

 

 

Number

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit No.

2.1

Share Exchange Agreement, dated June 29, 2015, by and among First American Group Inc., Loop Holdings, Inc., and the shareholders of Loop Holdings, Inc.

 

8-K

 

000-54768

 

Jun 30, 2015

 

2.1

3.1

Articles of Incorporation

 

 

 

Filed herewith

 

3.2

By-laws

 

S-1

 

333-171091

 

Dec 10, 2010

 

3.2

10.1

Intellectual Property Assignment Agreement dated October 27, 2014, as supplemented April 10, 2015, by and among Hatem Essaddam, Loop Holdings, Inc. and Daniel Solomita.

 

 

 

Filed herewith

 

10.2

Subscription Agreement, dated May 22, 2015, by and between 9121820 Canada Inc. and Loop Holdings, Inc.

 

 

 

Filed herewith

 

10.3

Technology Transfer Agreement, dated June 22, 2015 by and between 8198381 Canada Inc. and Loop Holdings, Inc.

 

8-K

 

000-54768

 

Jun 30, 2015

 

10.7

10.4

Employment Agreement dated June 29, 2015, as amended February 15, 2016, by and between Loop Industries, Inc. and Daniel Solomita.

 

 

 

Filed herewith

 

10.5

Master Services Agreement, dated September 1, 2015, by and between 8198381 Canada Inc. and Loop Holdings, Inc.

 

 

 

Filed herewith

 

10.6

Employment Agreement, dated June 1, 2016, by and between Cesar Contla and Loop Industries, Inc.

 

8-K

 

000-54768

 

Jul 8, 2016

 

10.2

10.7

Purchase and Sale Agreement, by and between 8198381 Canada Inc. and Loop Canada Inc. (formerly 9449507 Canada Inc.)

 

 

 

Filed herewith

 

10.8†

Agreement for Services, dated February 28, 2017, by and between Loop Industries, Inc. and Drinkfinity USA, Inc.

 

 

 

Filed herewith

 

10.9

Articles of Merger of Loop Holdings, Inc. into Loop Industries, Inc.

 

 

 

Filed herewith

 

10.10

Form of Indemnification Agreement

 

 

 

Filed herewith

 

14.1

Code of Ethics

 

8-K

 

000-54768

 

Jan 31, 2017

 

14.1

21.1

Subsidiaries of Registrant

 

 

 

Filed herewith

 

24.1

Power of Attorney (contained on signature page to this Annual Report on Form 10-K)

 

 

 

Filed herewith

 

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

Filed herewith

 

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

Filed herewith

 

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

Furnished herewith

 

32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

Furnished herewith

 

101.INS

XBRL Instance Document

 

 

 

Filed herewith

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

Filed herewith

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

Filed herewith

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

Filed herewith

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

Filed herewith

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

Filed herewith

 

________

† Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been submitted separately to the SEC.

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

LOOP INDUSTRIES, INC.

Date: May 30, 2017

By:

/s/ Daniel Solomita

Name:

Daniel Solomita

Title:

Chief Executive Officer, President, Secretary, Treasurer, and Director

 

POWER OF ATTORNEY

 

Each person whose signature appears below constitutes and appoints Daniel Solomita and D. Jennifer Rhee, and each of them, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

Date: May 30, 2017

By:

/s/ Daniel Solomita

 

 

Name:

Daniel Solomita

 

 

Title:

Chief Executive Officer, President, Secretary,

Treasurer, and Director

(principal executive officer)

 

 

 

 

 

Date: May 30, 2017

By:

/s/ D. Jennifer Rhee

Name:

D. Jennifer Rhee

Title:

Chief Financial Officer (principal accounting

officer and principal financial officer)

 

 

 

 

Date: May 30, 2017

By:

/s/ Donald Danks

Name:

Donald Danks

 

Title:

Director

 

 

 

 

 

Date: May 30, 2017

By:

/s/ Brian Young

 

 

Name:

Brian Young

 

 

Title:

Director

 

 

 

 

 

Date: May 30, 2017

By:

/s/ Jay Stubina

 

 

Name:

Jay Stubina

 

 

Title:

Director

 

 

 

 

 

   

 

31

 

EXHIBIT 3.1

 

 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 
 

 

 

 
 

 

EXHIBIT 10.1

 

INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

 

THIS INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (this “Agreement”) is made as of the 27th day of October, 2014.

 

BETWEEN:

 

HATEM ESSADDAM, chemist, domiciled and residing at _____________, acting both personally and for a corporation to be incorporated;

 

(the “ Assignor ”)

 

-and-

 

LOOP HOLDINGS, INC., a corporation incorporated under the federal laws of Nevada having its head office at 1999 Avenue of the Stars, Suite 2520, Los Angeles, California, herein represented by its president, Daniel Solomita, duly authorized as he so declares;

 

(the “ Assignee ”)

 

-and-

 

DANIEL SOLOMITA ,

 

(the “ Intervenor ”)

 

WHEREAS:

 

A. The Assignor has developed a certain technique and method allowing for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure (the “Technique”).

 

 

B. The Assignee wishes to develop a Polyethylene terephthalate depolymerization processing plant (the “Plant”).

 

 

C. The Assignor wishes to assign to the Assignee all of his rights, title and interests (including Intellectual Property rights), present and future, in and to the Technique.

 

NOW THEREFORE in consideration of the mutual agreements and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties covenant and agree as follows:

 
 
1
 
 

 

ARTICLE I

 

INTERPRETATION

 

1.1 Defined Terms

 

In this Agreement and in the Schedules attached hereto, unless the subject matter or context is inconsistent therewith, the following terms and expressions will have the following meanings:

 

(a) “Approvals” has the meaning ascribed thereto in Section 3.1.3;

 

(b) “Assignor’s Closing Certificate” has the meaning ascribed thereto m Section 6.1.2;

 

(c) “Assignee’s Closing Certificate” has the meaning ascribed thereto m Section 6.3.3 c);

 

(d) “Business Day” means any day other than a Saturday, Sunday or any day on which financial institutions are generally not open for business in the City of Montreal, Province of Quebec;

 

(e) “Claims” includes claims, demands, complaints, grievances, actions, applications, suits, causes of action, Orders, charges, indictments, prosecutions, informations or other similar processes, assessments or reassessments;

 

(f) “Closing” means the completion of the transactions contemplated herein on the Closing Date;

 

(g) “Closing Date” means, subject to the conditions to Closing having been satisfied or waived, the last day of the Transition Period, or such other date as the Parties may agree upon;

 

(h) “Closing Time” means 10:00 (a.m.) in Montreal, Quebec on the Closing Date or such other time on the Closing Date as the Parties hereto may agree upon;

 

(i) “Confidential Information” means all confidential information relating to (i) the Technique and the Intellectual Property Rights, (ii) the business, finances, operations, research and development activities, products or services of either party; (iii) third-party confidential information and (iv) all other information which is not generally known to the public or is by its nature or the circumstances in which it is made available to a party by the other, is such that it would generally be considered confidential or proprietary. Without limiting the generality of the foregoing, Confidential Information includes, without limitation, all forms of Confidential Information and support containing Confidential Information, whether oral, written or digital, whether provided, disclosed, furnished or prepared before, on or after the date of this Agreement, including all analyses, compilations, data, studies, notes, reports or other documents prepared by or for the other party, based upon or including any of such Confidential Information and, in all cases, includes all copies and tangible or intangible embodiments thereof, in whatever form or medium. However, Confidential Information does not include the information that (i) after disclosure, became part of the public domain otherwise than through the fault of the recipient thereof; (ii) was received by the recipient thereof on a non-confidential basis from a third party, provided that such third party is not known by such recipient to be bound by a confidentiality agreement with or other obligation of secrecy to the disclosing party; or (iii) is required to be disclosed by law to any competent judicial or governmental authority provided however that the other party is provided with the reasonable opportunity to make representations against such order.

 
 
2
 
 

 

(j) “Contract” or “Contracts” means contracts, licences, leases, agreements, obligations, promises, undertakings, understandings, arrangements, documents, commitments, entitlements or engagements to which the Assignor is a party or by which he is bound;

 

(k) “Deposit” has the meaning ascribed thereto in Section 2.2(a);

 

(l) “Due diligence investigation” means the investigation to be made by the Assignee on the Technique and the Intellectual Property Rights, in accordance with section 6.1.7;

 

(m) “Encumbrances” means mortgages, charges, pledges, security interests, liens, encumbrances, actions, claims and demands of any nature whatsoever or howsoever arising and any rights or privileges capable of becoming any of the foregoing;

 

(n) “Escrow agreement” means the agreement attached thereto as Schedule 2.2a);

 

(o) “Governmental Agencies” means any federal, provincial, municipal or other government or governmental agency, board, commission or authority, domestic or foreign;

 

(p) “Governmental Authorizations” means authorizations, approvals, franchises, Orders, certificates, consents, directives, notices, licences, permits, variances, agreements, instructions, registrations or other rights issued to or required by the Assignor by or from any Governmental Agency;

 

(q) “Indemnitee” has the meaning ascribed thereto in Section 8.3.1;

 

(r) “Indemnitor” has the meaning ascribed thereto in Section 8.3.1;

 

(s) “Indemnity Claim” has the meaning ascribed thereto in Section 8.3.1;

 

(t) “Intellectual Property Rights” means intellectual property rights, whether registered or not, owned, used or held by the Assignor in respect of the Technique, including:

 

(i) inventions, pending patent applications (including divisionals, reissues, renewals, re-examinations, continuations, continuations-in part and extensions) and issued patents, including those inventions, pending patent applications;

 

(ii) trade-marks, trade dress, trade-names, business names and other indicia of origin;

 

(iii) copyrights;

 
 
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(iv) all know-how, trade secrets, confidential or proprietary technical, business, financial and other information, data, plans, drawings, developments, inventions and ideas, invention disclosures and discoveries, whether or not patentable, including processes, methods of manufacture, process engineering and technology, schematics, sketches, graphs, product specifications, machine settings, techniques, methods, formulae, designs, current and anticipated customer requirements, price lists, client and customer and prospect lists and files, projections and budgets, analyses, and market studies, all business plans, strategic plans, marketing and advertising plans, and all rights therein and thereto;

 

(v) industrial designs and similar rights; and

 

(vi) all rights to commercialize and exploit the Technique;

 

(u) “Interim Period” means the period between the time of the signing of this Agreement and the Closing Time;

 

(v) “Laws” means applicable laws (including common law and civil law), statutes, by-laws, rules, regulations, Orders, ordinances, protocols, codes, guidelines, treaties, policies, notices, directions, decrees, judgments, awards or requirements, in each case of any Governmental Agency;

 

(w) “Liabilities” means all costs, expenses, charges, debts, liabilities, claims, demands and obligations, whether primary or secondary, direct or indirect, fixed, contingent, absolute or otherwise, under or in respect of any applicable law or otherwise;

 

(x) “Milestones” has the meaning ascribed thereto in Section 2.2;

 

(y) “Orders” means orders, injunctions, judgments, administrative complaints, decrees, rulings, awards, assessments, directions, instructions, penalties or sanctions issued, filed or imposed by any Governmental Agency or arbitrator;

 

(z) “Osler” means Osler, Hoskin & Harcourt LLP, having a place of business located at 1000 De La Gauchetiere Street West, Suite 2100, Montreal, Quebec H3B 4W5 and hereby represented by Me Antonella Penta;

 

(aa) “Operating day” means any day where terephthalic acid is produced at the Plant;

 

(bb) “Person” or “person” is to be broadly interpreted and includes any individual, corporation, partnership, firm, joint venture, syndicate, association, trust, Governmental Agency, and any other form of entity or organization;

 

(cc) “Plant” has the meaning ascribed thereto in the Recitals, being understood that it includes any facility built or owned by the Assignee and/or by its subsidiaries or Person under its control, that is used for any process of depolymerisation of the polyethylene terephthalate based on the Technique;

 
 
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(dd) “Process” means the process of extraction of ethylene glycol from the Technique, to be developed by Mr. Jocelyn Proulx in collaboration with the Assignor, as agreed upon between Mr. Proulx and the Assignee;

 

(ee) “Purchased assets” has the meaning ascribed thereto in Section 2.1;

 

(ff) “Purchase Price” has the meaning ascribed thereto in Section 2.2;

 

(gg) “Specifications” means the Specifications provided by Selenis Canada attached hereto as Schedule 1.1(gg);

 

(hh) “Technique” has the meaning ascribed thereto in the Recitals;;

 

(ii) “Technique Sheet” means a document prepared by the Assignor and containing all of the information regarding the Technique in its integrality and the Intellectual Property Rights, including, without limitation, starting product, end product, chemicals used to depolymerize, process of the Technique and all explanations necessary to apply the Technique in an industrial process;

 

(jj) “Third Party Liability” has the meaning ascribed thereto in Section 8.3.2;

 

(kk) “Transition Period” means a period of sixty (60) days following the reception of the Technique Sheet by the Assignee; and

 

(ll) “Warranty Claim” means a claim made by either the Assignee or the Assignor based on or with respect to the inaccuracy or non-performance or non-fulfilment or breach of any representation, warranty or covenant made by the other party contained in this Agreement or contained in any document or certificate given in order to carry out the transactions contemplated hereby.

 

1.2 Materiality

 

Any reference to the word “material” herein means any violation or inaccuracy, that would materially affect the Purchased Assets but excluding (a) any changes in general economic conditions; and (b) any changes generally affecting the industry in which the Assignor operates.

 

1.3 Schedules

 

The Schedules constitute a part of this Agreement and are incorporated into this Agreement for all purposes as if fully set forth herein. Any disclosure made in any Schedule to this Agreement that may be applicable to another Schedule to this Agreement shall be deemed to be made with respect to such other Schedule to the extent that it is prima facie apparent from a reading of such Schedule that it would also qualify or apply to such other Schedule. The following Schedules which are attached to this Agreement are incorporated into this Agreement by reference and are deemed to be part hereof:

 

Schedule 1.1 (gg)        Specifications

Schedule 2.2 (a)           Escrow Agreement

 
 
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1.4 Currency

 

Unless otherwise indicated, all dollar amounts referred to in this Agreement are stated in Canadian dollars.

 

1.5 Choice of Law and Attornment

 

This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec and the laws of Canada applicable therein. The Parties agree that the courts of the Province of Quebec, district of Montreal, will have non-exclusive jurisdiction to determine all disputes and claims arising between the Parties.

 

1.6 Interpretation Not Affected by Headings or Party Drafting

 

The division of this Agreement into articles, sections, paragraphs and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement and the Schedules hereto and not to any particular article, section, paragraph, clause or other portion hereof and include any agreement or instrument supplementary or ancillary hereto. Each party hereto acknowledges that it and its legal counsel have reviewed and participated in settling the terms of this Agreement, and the Parties hereby agree that any rule of construction to the effect that any ambiguity is to be resolved against the drafting party shall not be applicable in the interpretation of this Agreement.

 

1.7 Number and Gender

 

In this Agreement, unless there is something in the subject matter or context inconsistent therewith:

 

(a) words in the singular number include the plural and such words shall be construed as if the plural had been used;

 

(b) words in the plural include the singular and such words shall be construed as if the singular had been used; and

 

(c) words importing the use of any gender shall include all genders where the context or party referred to so requires and the rest of the sentence shall be construed as if the necessary grammatical and terminological changes had been made.

 

1.8 Time of Essence

 

Time shall be of the essence of this Agreement in all respects.

 
 
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ARTICLE II

 

PURCHASE AND SALE

 

2.1 Assignment

 

On the terms and subject to the conditions set forth in this Agreement, the Assignor agrees to assign, sell, transfer and deliver to the Assignee at the Closing Time, free and clear of all Encumbrances, all of the Assignor’s rights, title and interest in and to the Technique and the Intellectual Property Rights (collectively, the “Purchased Assets”), and the Assignee agrees to purchase and accept from the Assignor at the Closing Time, the Purchased Assets.

 

2.2 Purchase Price

 

The purchase price payable by the Assignee to the Assignor for the Purchased Assets shall be ONE MILLION THREE HUNDRED THOUSAND DOLLARS $(1,300,000.00) (the “Purchase Price”), exclusive of all Taxes, payable as follows:

 

(a) Within five (5) days following the reception, by the Assignee, of results confirming that the Technique meets the Specifications under the testing conditions of Techsolutions Environment Inc. and analysis by the University of Montreal for purity levels exceeding the Specifications, the Assignor will remit the Technique Sheet to the Assignee and the Assignee will deposit an amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) with Osler, in trust, to be held in accordance with the Escrow Agreement (the “Deposit”);

 

(b) Subject to the conditions set out in Article 6 hereunder having been complied with and subject to the terms of the Escrow Agreement, on the Closing Date, the Assignee shall give irrevocable instructions to Osler to proceed to the transfer of the Deposit to Me Charles Derome, in trust for the benefit of the Assignor, and shall remit and additional amount of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) to Me Charles Derome, in trust for the benefit of the Assignor, by wire transfer;

 

(c) Subject to the Closing, TWO HUNDRED THOUSAND DOLLARS ($200,000) to be paid by wire transfer to the Assignor within sixty (60) days of each of the following milestone having been met (collectively, the “Milestones”), which Milestones are to be calculated separately one from the other and not cumulatively:

 

(i) An average of twenty (20) metric tons per day of terephthalic acid meeting the Specifications is produced at the Plant for twenty (20) Operating days;

 

(ii) An average of thirty (30) metric tons per day of terephthalic acid meeting the Specifications having been produced at the Plant for thirty (30) Operating days;

 

(iii) An average of sixty (60) metric tons per day of terephthalic acid meeting the Specifications having been produced a the Plant for sixty (60) Operating days; and

 

(iv) An average of one hundred (100) metric tons per day of terephthalic acid meeting the Specifications having been produced at the Plant for sixty (60) Operating days

 

 
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2.3 Transition Period Payment

 

In addition to the payment of the Purchase Price, during the Transition Period, the Assignee shall make a consulting payment in the amount of up to SIXTEEN THOUSAND DOLLARS ($16,000) to the Assignor payable as follows:

 

(a) EIGHT THOUSAND DOLLARS ($8,000) payable concurrently with the Deposit by check made payable to the Assignor; and

 

(b) subject to the conditions set out in Article 6 hereunder having been complied with, EIGHT THOUSAND DOLLARS ($8,000) payable on the Closing Date by check made payable to the Assignor.

 

2.4 Royalties

 

In addition to the payment of the Purchase Price, the Assignee shall provide the Assignor a royalty payment as follows up to a maximum aggregate amount of TWENTY-FIVE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($25,700,000):

 

(a) 10% of gross profits on the sale of all products derived by the Assignee from the Technique;

 

(b) 10% of any license fee paid to the Assignee in respect of any licensing or other right to use the Technique granted to a third party by the Assignee;

 

(c) 5% of any royalty or other similar payment made to the Assignee by a third party to whom a license or other right to use the Technique has been granted by the Assignee; and

 

(d) 5% of any royalty or other similar payment made to the Assignee by a third party in respect of a sub-license or other right to use the Technique granted by the third party.

 

2.5 Access to the Assignee’s books, records and financial statements

 

(a) Upon reasonable notice to the Assignee, the Assignor shall have the right to inspect the books, records and financial statements of the Assignee and/or of any of its subsidiaries, legal person under its control, related person according to the Income Tax Act (R.S.C. 1985, C.-1) or of any person or corporation to which the Assignee has assigned, transferred or otherwise alienated any part of its rights in the Technique and the Intellectual Property Rights, at the premises of the Assignee, to ascertain the royalty payments to be made pursuant to Section 2.4 above. This right shall be exercisable by the Assignor no more than two (2) times per fiscal year;

 

(b) Within ten (10) days following the preparation of its financial statements for the preceding year, the Assignee shall notify the Assignor, in writing, that the said financial statements are available for consultation.

 

 
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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Assignor

 

As a material inducement to the Assignee entering into this Agreement and completing the transactions contemplated by this Agreement, the Assignor represents and warrants to the Assignee as of the date of this Agreement and as of the Closing Date as follows:

 

3.1.1 No Other Purchase Agreements . No person has any agreement, option, understanding or commitment, or any right or privilege (whether by law or contractual) capable of becoming an agreement, option or commitment, for the purchase or other acquisition from the Assignor of any of the Purchased Assets, or for any rights or interest therein by way of licence, right to use or similar right.

 

3.1.2 Absence of Conflicts . The Assignor is not a party to, bound or affected by or subject to any:

 

(a) Contract;

 

(b) charter or by-law; or

 

(c) Laws or Governmental Authorizations; that would be violated, breached by, or under which default would occur or an Encumbrance would, or with notice or the passage of time would, be created, or in respect of which the obligations of the Assignor will increase or the rights or entitlements of the Assignor will decrease or any obligation on the part of the Assignor to give notice to any Governmental Agency will arise, as a result of the execution and delivery of, or the performance of obligations under, this Agreement or any other agreement to be entered into under the terms of this Agreement.

 

3.1.3 Contractual and Regulatory Approvals. (a) The Assignor is under no obligation, contractual or otherwise, to request or obtain the consent of, or notify any Person; (b) no permits, licences, certifications, authorizations or approvals, or notifications (collectively, “ Approvals ”) to, or Governmental Agency are required to be obtained by the Assignor, in connection with the execution, delivery or performance by it of this Agreement or the completion of any of the transactions contemplated herein. Complete and correct copies of agreements under which the Assignor is obligated to request or obtain such Approvals have been provided to the Assignee.

 
 
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3.1.4 Bankruptcy. The Assignor is not an insolvent person within the meaning of the Bankruptcy and Insolvency Act (Canada) nor has made an assignment in favour of neither his creditors nor a proposal in bankruptcy to his creditors or any class thereof nor had any petition for a receiving order presented in respect of it. The Assignor has not initiated proceedings with respect to a compromise or arrangement with his creditors or for its winding up, liquidation or dissolution. No receiver has been appointed in respect of the Assignor or any of the Purchased Assets and no execution or distress has been levied upon any of the Purchased Assets.

 

3.1.5 Intellectual Property Rights.

 

(a) Other than a patent application submitted to the French patent office which was subsequently withdrawn, there are no Intellectual Property Rights in respect of the Technique which have been registered, or for which applications for registration have been filed, by or on behalf of the Assignor in any jurisdiction.

 

(b) There are no Contracts relating to the Intellectual Property Rights

 

(c) Neither the Technique nor the Intellectual Property Rights were developed by or on behalf of or using grants, subsidies, compensation, or the facilities of any academic or research institution or governmental authority, other than research and development tax credits and other similar tax or governmental benefits that are available to the general public, and that do not obligate the Assignor to transfer title to any Intellectual Property Rights owned or purported to be owned by the Assignor or impose any licensing obligations on the Assignor with respect to such Intellectual Property Rights

 

(d) There are no Claims by the Assignor relating to breaches, violations, infringements or interferences with any of the Intellectual Property Rights by any other Person and the Assignor has no knowledge of any facts upon which such a Claim could be based. No other Person is using the Technique so as to breach, violate, infringe or interfere with the rights of the Assignor.

 

(e) There are no Claims in progress or pending or, to the Assignor’s knowledge, threatened against the Assignor relating to the Intellectual Property Rights and there is no valid basis for any such Claim. The use, possession, reproduction, distribution, sale, licensing, sublicensing or other dealings involving any of the Intellectual Property Rights does not breach, violate, infringe or interfere with any rights of any other Person.

 
 
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3.1.6 Liabilities. There are no Liabilities (contingent or otherwise) of the Assignor of any kind whatsoever in respect of which the Assignee may become liable on or after the consummation of the transactions contemplated by this Agreement.

 

3.1.7 Litigation. The Assignor has not received a written notice in respect of any actions, suits or proceedings, either judicial or administrative (whether or not purportedly on behalf of the Assignor) pending or, to the knowledge of the Assignor, threatened, by or against or affecting it which relate to the Purchased Assets, at law or in equity, or before or by any court or any federal, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, whether domestic or foreign nor to the knowledge of the Assignor do any facts exist which could reasonably be expected to give rise to any of the same, except for the notice sent by Ventix Environnement Inc., of which the Assignee hereby confirms having received a copy.

 

3.1.8 Title to Purchased Assets; Specifications. The Assignor is the exclusive owner of all right, title and interest in and to the Technique and the Intellectual Property Rights free and clear of all Encumbrances. No third parties made any contributions to the development of the Technique or any of the Intellectual Property rights. As at the Closing Time, the Assignee will be the owner of and will have good and marketable title to all of the Purchased Assets free and clear of all Encumbrances. The Technique is currently capable of meeting the Specifications.

 

3.1.9 Compliance with Laws. In relation to the Purchased Assets, the Assignor is not in violation in any material respect of any federal, provincial or other law, regulation or order of any Governmental Agency.

 

3.1.10 Residency. The Assignor is not a non-resident of Canada for the purposes of the Income Tax Act (R.S.C. 1985, C.-1).

 

3.1.11 Disclosure. No representation or warranty contained in this Section 3.1, and no statement contained in any schedule, certificate, list, summary or other disclosure document provided or to be provided to the Assignee pursuant hereto, or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact which is necessary in order to make the statements contained herein and therein not misleading.

 
 
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ARTICLE IV

 

SURVIVAL AND LIMITATIONS OF REPRESENTATIONS AND WARRANTIES

 

4.1 Survival of Representations and Warranties by the Assignor

 

The representations, warranties, covenants and obligations made by the Assignor contained in this Agreement or contained in any document or certificate provided by the Assignor in order to carry out the transactions contemplated hereby shall survive the Closing and shall continue in full force and effect for the benefit of the Assignee indefinitely.

 

ARTICLE V

 

COVENANTS

 

5.1 Covenants of the Parties

 

5.1.1 Exclusivity. In consideration of the substantial expenditure of time and effort undertaken and to be undertaken by the Assignee, the Assignor shall not, until the date which is six (6) months from the termination of this Agreement pursuant to Section 6.2 or Section 6.4, (i) offer to assign or sell, solicit any offer to assign or purchase, or engage in any negotiations relating to the purchase of the Technique or any Intellectual Property Right by any person or entity other than the Assignee, (ii) offer to license the Technique or any of the Intellectual Property Rights or enter into any negotiation related thereto, or (iii) provide any information related to the Technique or any Intellectual Property Rights to any person or entity other than the Assignee.

 

5.1.2 Reimbursement of fees and expenses. The Assignor agrees that where the Assignee terminates this Agreement for any reason according to the present agreement, then the Assignor shall remit to the Assignee all product and equipment purchased in connection with all testing conducted.

 

5.1.3 Transition Period. During the Transition Period, (i) the Assignee shall conduct its legal due diligence investigation within the first thirty (30) days thereof (other than being satisfied with the financial viability associated with commercializing the Technique), and (ii) the Assignor shall transmit all of the know-how related to the Technique and the Intellectual Property Rights and collaborate with Techsolutions Environment Inc. for the development of the Process on an industrial scale.

 
 
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5.1.4 Filings and Authorizations. Each of the Parties, as promptly as practicable after the execution of this Agreement, shall (i) make, or cause to be made, all filings and submissions under all Laws applicable to it, that are required to consummate the transactions contemplated hereby, (ii) use reasonable efforts to obtain, or cause to be obtained, all authorizations necessary or advisable to be obtained by it in order to consummate such transactions and (iii) use reasonable efforts to take, or cause to be taken, all other actions necessary, proper or advisable in order for it to fulfill its obligations under this Agreement.

 

5.1.5 Notice of Untrue Representation or Warranty. The Assignor shall notify the Assignee promptly upon any representation or warranty made by him contained in this Agreement becoming incorrect prior to Closing, and, for the purposes of this Section 5.1.5, unless otherwise specified, each representation and warranty shall be deemed to be given at and as of all times from the date of this Agreement to the Closing Date. Any such notice shall set out particulars of the untrue or incorrect representation or warranty and details of any actions being taken by the Assignor to rectify the incorrectness. No such notice shall relieve the Assignor of any liability provided for in this Agreement.

 

5.1.6 Actions to Satisfy Closing Conditions. Each of the Parties shall take all such actions as are within its power to control, and use reasonable commercial efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with each of the conditions and covenants set forth in Article 5 and Article 6 which are for the benefit of any other party, provided that the Assignee shall not be required to dispose of or make any change to its business, the business of any of its Affiliates or the business of the Corporation, or expend any material amounts or incur any other obligation in order to comply with this Section (other than amounts specifically contemplated to be paid pursuant to this Agreement).

 

5.1.7 Assignment of Intellectual Property Rights. At the Closing Date, if all the obligations of the Assignee under the present agreement are fulfilled, the Assignor shall assign the Intellectual Property Rights and waive any moral rights he has therein and filed all such documents as may be required to effect the assignment with the relevant Governmental Agencies.

 

5.1.8 Documents. On the Closing Date, the Assignor shall remit to the Assignee all such documents in his possession related to the Intellectual Property Rights.

 

5.1.9 Non-Compete (Assignor). The Assignor agrees that he shall not, directly or indirectly, be involved in any business or project, whether personally or as a shareholder, director, officer, employee, consultant, lender or otherwise, which is similar to the business of commercializing the Technique or is competitive therewith anywhere in North America or Europe for a period of five (5) years following receipt of the last payment made pursuant to Section 2.3 hereof.

 
 
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5.1.10 Confidentiality. The Confidential Information disclosed by either party during the course of their relationship shall be kept confidential by the recipient thereof and not be disclosed to anyone without a “need to know” for the purposes of carrying out the intent of this Agreement. Neither party shall disclose the Confidential Information to any third party. Each party shall take the necessary steps to protect the Confidential Information and these steps must be at least as protective as those taken to protect each party’s own Confidential Information, provided these steps are diligent.

 

The Confidential Information shall be used strictly in connection with the execution of its obligations and rights towards the other party. The Assignee may disclose to its Affiliates, licensees or other third parties to whom rights to use the Intellectual Property have been granted, as well as to sub-contractors or other consultants in order to allow the sub-contractors or other consultants to perform their duties, provided that such persons are under obligations of confidentiality and undertake not to disclose or use said Confidential Information otherwise than as permitted by the Assignee.

 

The obligations and undertakings under this Section 5.1.10 shall remain in force and survive for as long as the Confidential Information remains secret.

 

5.1.11 Confidentiality and non-compete (Assignee and Intervenor). In the event that this Agreement would be resiliated by either party as provided herein or that it would not be carried on for any reason whatsoever, or if the conditions of this Agreement are not met or realized, including, without limitation, if the Assignee, after its due diligence verification, is not satisfied of the financial viability associated with commercializing the Technique, it is understood that the Confidential Information, the Technique and the Intellectual Property rights will remain the sole property of the Assignor and that the Assignee and the Intervenor shall not use the Confidential Information or disclose, transfer or otherwise communicate the Confidential Information to any third party whatsoever and that any information that they would have received in respect with this Agreement regarding the Technique or the Intellectual Property Rights will remain strictly confidential and that they shall not, directly or indirectly, be involved in any business or project, whether personally or as a shareholder, director, officer, employee, consultant, lender or otherwise, which is similar to the business of commercializing the Technique or that would use, be based on or employ all or part of the Technique, the Intellectual Property Rights or the Confidential Information, anywhere in the world and indefinitely.

 
 
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5.1.12 Default. If any party herein breaches the undertakings set forth in Sections 5.1.9, 5.1.10 or 5.1.11 hereinabove, as applicable, and if such breach is not remedied within five (5) days of receipt of a written notice of default from one party to the breaching party (the “Defaulting Party”), the Defaulting Party shall pay the party victim of the breach (the “Non-Defaulting Party”), upon request, an amount of $1000 per day as liquidated damages, without prejudice to any other recourse including, without limitation, injunctive relief.

 

Each party hereby acknowledges and agrees that the breach of the terms of Sections 5.1.9, 5.1.10 or 5.1.11 shall cause serious and irreparable harm to the Non-Defaulting Party. Consequently, in case of such breach, the Non-Defaulting Party shall have immediate recourse to injunctive relief and damages and interest, and this, in addition to any claim for the payment of the aforementioned liquidated damages.

 

In addition, and without limiting the generality of the foregoing, each party hereby acknowledges and declares that:

 

(a) The undertakings pursuant to Sections 5.1.9, 5.1.10 and 5.1.11 are reasonable in terms of the duration, the territory and the activities to which they refer;

 

(b) The scope and consequences of the liquidated damages clause are clear, concise and coherent;

 

(c) The terms of this Section and of Sections 5.1.9, 5.1.10 and 5.1.11 have been negotiated in good faith by the parties hereto which terms they consider reasonable and the parties declare being satisfied therewith; and

 

(d) The liquidated damages are justifiable, clearly reasonable and proportional to the prejudice that would be suffered by the Non-Defaulting Party in case of default on the part of the Defaulting Party to abide by their undertakings and, consequently, each party hereby recognises that the liquidated damages clause is not abusive but rather realistic given its purpose and that it does not give an excessive or unfair advantage to the Non-Defaulting Party.

 

The payment of any liquidated damages pursuant to this Section or pursuant to any judicial proceedings instituted by the beneficiaries of the undertakings in this Section shall not in any way constitute acquiescence to such default or to the furtherance thereof.

 

In addition, if despite the foregoing, a court should consider any of the aforementioned restrictions or the resulting liquidated damages to be excessive, the parties consent to such court reducing the scope of such restriction or the amount of the contested liquidated damages, to an amount which the court considers to be reasonable under the circumstances as opposed to rendering the restrictions or the liquidated damages unenforceable.

 
 
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Finally, it is understood between the parties that the aforementioned confidentiality and non-competition restrictions are separate and distinct from one another, so that if one restriction is considered to be unenforceable, this shall not in itself be cause for the other restrictions to be considered unenforceable.

 

5.1.13 Consulting Agreement. The Parties agree to negotiate a Consulting Agreement upon the establishment of the Plant whereby the Assignor will provide certain consulting services to the Assignee, the whole on terms and conditions to be negotiated by the Parties in good faith.

 

5.1.14 Tax Matters. Prior to the Closing Date, the Assignor shall become duly registered under under the Excise Tax Act (Canada) with respect to the goods and services tax and under the Quebec Sales Tax Act with respect to the Quebec sales tax and shall provide the Assignee with such registration numbers.

 

ARTICLE VI

 

CONDITIONS

 

6.1 Conditions to the Obligations of the Assignee

 

Notwithstanding anything herein contained, the obligation of the Assignee to complete the transactions provided for herein will be subject to the fulfilment of the following conditions at or prior to the Closing Time.

 

6.1.1 Completion of Process Development. Testing conducted by Techsolutions Environment Inc. shall demonstrate that the Technique allows the production of sufficient levels of terephthalic acid to be commercialized in an industrial process, the whole as set out in Section 5.1.3.

 

6.1.2 Accuracy of Representations and Warranties and Performance of Covenants. The representations and warranties of the Assignor contained in this Agreement or in any document or certificate delivered in order to carry out the transactions contemplated hereby shall be true and accurate in all material respects (except where such representations and warranties are already qualified by the term “material” in which event such representations and warranties shall be true and correct in all respects) on the Closing Date. In addition, the Assignor shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by him at or prior to the Closing Time and the Assignor shall deliver to the Assignee at the Closing Time a certificate confirming compliance with this Section (the “Assignor’s Closing Certificate”).

 

6.1.3 Material Adverse Changes. Since the date of this Agreement there will have been no material change in the Purchased Assets, howsoever arising.

 
 
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6.1.4 No Restraining Proceedings. No order, decision or ruling of any court, tribunal or regulatory authority having jurisdiction over the Assignor shall have been made, and no action or proceeding shall be pending or threatened in writing which, in the opinion of counsel to the Assignee (acting reasonably), is likely to result in an order, decision or ruling to disallow, enjoin, prohibit or impose any material limitations or conditions on the purchase and sale of the Purchased Assets contemplated hereby or the right of the Assignee to own the Purchased Assets.

 

6.1.5 Consents. All consents and approvals required to be obtained in order to carry out the transactions contemplated hereby in compliance with all laws and agreements binding upon the Parties hereto shall have been obtained. Further, the Assignor shall have delivered to the Assignee evidence of the discharge of all Encumbrances in respect of the Purchased Assets, if any.

 

6.1.6 Deliveries .

 

The Assignor shall deliver or cause to be delivered to the Assignee the following in form and substance satisfactory to the Assignee, acting reasonably:

 

(a) the Assignor’s Closing Certificate;

 

(b) all documents required to be filed in respect of Section 5.1.7 or to be remitted in respect of Section 5.1.8; and

 

(c) all such other deliveries as may reasonably be requested by the Assignee.

 

6.1.7 Due Diligence. The Assignee shall be satisfied with its due diligence investigation, including, without limitation, being satisfied with the financial viability associated with commercializing the Technique and all processing costs related thereto;

 

6.1.8 No Legal Action. No action or proceeding will be pending or threatened in writing and no order or notice will have been made, issued or delivered by any Governmental Agency, seeking to enjoin, restrict or prohibit, or enjoining, restricting or prohibiting the transactions contemplated by this Agreement.

 

6.1.9 Financing. The Assignee shall have secured financing required to pay the Purchase Price.

 
 
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6.2 Waiver or Termination by the Assignee

 

The conditions contained in Section 6.1 hereof are inserted for the exclusive benefit of the Assignee and may be waived in whole or in part by the Assignee at any time. The Assignor acknowledges that the waiver by the Assignee of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Assignor herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 6.1 hereof are not fulfilled or complied with as herein provided, the Assignee may, at or prior to the Closing Time at its option, rescind this Agreement by notice in writing to the Assignor and in such event the Assignee shall be released from all obligations hereunder other than those which are meant by their nature to survive including, without limitation, Section 5.1.2, 5.1.9, 5.1.10, and 5.1.12.

 

6.3 Conditions to the Obligations of the Assignor

 

Notwithstanding anything herein contained, the obligations of the Assignor to complete the transactions provided for herein will be subject to the fulfilment of the following conditions at or prior to the Closing Time.

 

6.3.1 Performance of Covenants. The Assignee shall have complied with all covenants and agreements herein agreed to be performed or caused to be performed by it at or prior to the Closing Time.

 

6.3.2 No Restraining Proceedings. No order, decision or ruling of any court, tribunal or regulatory authority having jurisdiction shall have been made, and no action or proceeding shall be pending or threatened which, in the opinion of counsel to the Assignor, is likely to result in an order, decision or ruling, to disallow, enjoin or prohibit the purchase and sale of the Purchased Assets contemplated hereby.

 

6.3.3 Deliveries .

 

Assignee shall deliver or cause to be delivered to the Assignor the following in form and substance satisfactory to the Assignor acting reasonably:

 

(a) certified copies of all resolutions of Assignee approving the entering into and completion of the transactions contemplated by this Agreement;

 

(b) a recent certificate of status, compliance, good standing or similar certificate with respect to Assignee issued by the appropriate government officials of its jurisdiction of formation; and

 

(c) The Assignee shall deliver to the Assignor, at the Closing Time, a certificate confirming compliance with this Section (“the Assignee’s Closing Certificate”).

 

6.3.4 No Legal Action. No action or proceeding will be pending or threatened by any Person (other than the Assignor), and no order or notice will have been made, issued or delivered by any Governmental Agency, seeking to enjoin, restrict or prohibit, or enjoining, restricting or prohibiting the transactions contemplated by this Agreement.

 
 
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6.4 Waiver or Termination by the Assignor

 

The conditions contained in Section 6.3 hereof are inserted for the exclusive benefit of the Assignor and may be waived in whole or in part by the Assignor at any time. The Assignee acknowledges that the waiver by the Assignor of any condition or any part of any condition shall constitute a waiver only of such condition or such part of such condition, as the case may be, and shall not constitute a waiver of any covenant, agreement, representation or warranty made by the Assignee herein that corresponds or is related to such condition or such part of such condition, as the case may be. If any of the conditions contained in Section 6.3 hereof are not fulfilled or complied with as herein provided, the Assignor may, at or prior to the Closing Time at its option, rescind this Agreement by notice in writing to the Assignee and in such event the Assignor shall be released from all obligations hereunder, and unless the condition or conditions which have not been fulfilled are reasonably capable of being fulfilled or caused to be fulfilled by the Assignee, then the Assignee shall also be released from all obligations hereunder other than those which by their nature are meant to survive, including without limitation Sections 5.1.10, 5.1.11 and 5.1.12.

 

ARTICLE VII

 

CLOSING

 

7.1 Closing Arrangements

 

Subject to the terms and conditions hereof, the closing of the transactions contemplated herein (the “Closing”) shall be held at the Closing Time by way of virtual closing or at such place or places as may be mutually agreed upon by the Assignor and the Assignee.

 

7.2 Documents to be Delivered

 

At or before the Closing Time, the Assignor shall execute, or cause to be executed, and shall deliver, or cause to be delivered, to the Assignee all documents, instruments and things which are to be delivered by the Assignor pursuant to the provisions of this Agreement, and the Assignee shall execute, or cause to be executed, and shall deliver, or cause to be delivered, to the Assignor all documents, instruments and things which the Assignee is to deliver or to cause to be delivered pursuant to the provisions of this Agreement.

 
 
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ARTICLE VIII

 

INDEMNIFICATION

 

8.1 Indemnity by the Assignor

 

8.1.1 The Assignor hereby agrees to indemnify and save the Assignee harmless from and against any claims, demands, actions, causes of action, damage, loss, deficiency, cost, Liability and expense which may be made or brought against the Assignee or which the Assignee may suffer or incur as a result of, in respect of or arising out of:

 

(a) any non-performance or non-fulfilment of any covenant or agreement on the part of the Assignor contained in this Agreement or in any document given in order to carry out the transactions contemplated hereby;

 

(b) any successful claim made by Ventix Environment Inc. in respect of the Technique or the Intellectual Property Rights;

 

(c) any misrepresentation, inaccuracy, incorrectness or breach of any representation or warranty made by the Assignor contained in this Agreement or contained in any document or certificate given in order to carry out the transactions contemplated hereby; and

 

(d) all costs and expenses including, without limitation, reasonable legal fees incidental to or in respect of the foregoing.

 

8.2 Indemnity by the Assignee

 

8.2.1 The Assignee hereby agrees to indemnify and save the Assignor harmless from and against any claims, demands, actions, causes of action, damage, loss, deficiency, cost, Liability and expense which may be made or brought against the Assignor or which the Assignor may suffer or incur as a result of, in respect of or arising out of:

 

(a) any non-performance or non-fulfilment of any covenant or agreement on the part of the Assignee contained in this Agreement or in any document given in order to carry out the transactions contemplated hereby;

 

(b) any willful misconduct or fraudulent misrepresentation made by the Assignee contained in this Agreement or contained in any document or certificate given in order to carry out the transactions contemplated hereby; and

 

(c) all costs and expenses including, without limitation, reasonable legal fees incidental to or in respect of the foregoing.

 

8.3 Provisions Relating to Indemnity Claims

 

8.3.1 Promptly after becoming aware of any matter that may give rise to a claim by the Assignee for indemnification by the Assignor pursuant to Section 8.1 or a claim by the Assignor for indemnification by the Assignee pursuant to Section 8.2, (an “Indemnity Claim”), the party making the claim (the “Indemnitee”) will provide to the other party (the “Indemnitor”) written notice of the Indemnity Claim specifying (to the extent that information is available) the factual basis for the Indemnity Claim and the amount of the Indemnity Claim (the “Damages”) or, if Damages are not then determinable, an estimate of the amount of Damages, if an estimate is feasible in the circumstances.

 
 
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8.3.2 With respect to any Indemnity Claim that relates to an alleged liability to any third person (the “Third Party Liability”), provided the Indemnitor first admits the Indemnitee’s right to indemnification for the amount of such Third Party Liability which may at any time be determined or settled, then in any legal, administrative or other proceedings in connection with the matters forming the basis of the Third Party Liability, the following procedures will apply:

 

(a) except as contemplated by paragraph (c) below, the Indemnitor will have the right to assume carriage of the compromise or settlement of the Third Party Liability and the conduct of any related legal, administrative or other proceedings, but the Indemnitee shall, at its cost and expense, have the right and shall be given the opportunity to participate in the defense of the Third Party Liability, to consult with the Indemnitor in the settlement of the Third Party Liability and the conduct of related legal, administrative and other proceedings (including consultation with counsel);

 

(b) each party will co-operate with the other in relation to the Third Party Liability, will keep it fully advised with respect thereto, will provide it with copies of all relevant documentation as it becomes available, will provide it with access to all records and files relating to the defense of the Third Party Liability and will meet with representatives of the other party at all reasonable times to discuss the Third Party Liability; and

 

(c) notwithstanding paragraphs (a) and (b), the Indemnitor will not settle the Third Party Liability or conduct any legal, administrative or other proceedings in any manner which could, in the reasonable opinion of the Indemnitee, have a material adverse effect on the Purchased Assets, except with the prior written consent of the Indemnitee.

 

8.3.3 If, with respect to any Third Party Liability, the Indemnitor does not admit the Indemnitee’ s right to indemnification or declines to assume carriage of the settlement or of any legal, administrative or other proceedings relating to the Third Party Liability, then the following provisions will apply:

 

(a) the Indemnitee, at its discretion, may assume carriage of any legal, administrative or other proceedings relating to the Third Party Liability and may defend the Third Party Liability on such terms as the Indemnitee, acting in good faith, considers advisable,

 
 
21
 
 

 

(b) any cost, loss, damage or expense incurred or suffered by the Indemnitee in the settlement of such Third Party Liability or the conduct of any legal, administrative or other proceedings shall be added to the amount of the Indemnity Claim; and

 

(c) if, pursuant to this Section 8.3.3, the Indemnitee undertakes the investigation and defence of any Third Party Liability, then the Indemnitee may compromise and settle the legal, administrative or other proceedings relating to the Third Party Liability but the Indemnitor shall not be bound by any compromise or settlement of such legal, administrative or other proceedings relating to such Third Party Liability effected without its consent (which consent is not to be unreasonably withheld) and, in no event, shall the Indemnitor be required to assume any liability for any Third Party Liability in excess of the limitations set forth herein.

 

8.3.4 An Indemnity Claim not involving a Third Party Liability shall be indemnified, paid or reimbursed promptly after such Indemnity Claim has been finally determined or agreed to in writing by the Assignee and Assignor.

 

8.3.5 Any Claim for Damages made by the Assignee hereunder may be set-off by the Assignee against any payment owed to the Assignor. The exercise of such right of set off by the Assignee in good faith, whether or not ultimately determined to be justified, shall not constitute a default under this Agreement, regardless of whether the Assignor disputes such set off, or whether such set off is for a contingent or an unliquidated amount.

 

ARTICLE IX

 

INTERVENTION

 

9.1 Intervention of Daniel Solomita

 

The Intervenor intervenes herein, for purposes only of: (i) his obligations set forth in Sections 5.1.10, 5.1.l l and 5.1.12; and (ii) to become surety of the Assignee’s obligations pursuant to Sections 5.1.10, 5.1.11 and 5.1.12, only to the extent that the Intervenor controls the Assignee (as the term “control” is defined in the Canada Business Corporations Act), the whole in accordance with Section 2333 of the Civil Code of Quebec, the Intervenor herby renouncing to the benefit of discussion and division.

 

ARTICLE X

 

GENERAL PROVISIONS

 

10.1 Further Assurances

 

Each of the Assignor and the Assignee hereby covenants and agrees that at any time and from time to time after the Closing Date it will, upon the request and cost of the other, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances as may be required for the better carrying out and performance of all the terms of this Agreement.

 
 
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10.2 Remedies Cumulative

 

The rights and remedies of the Parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach.

 

10.3 Notices

 

(a) Any notice, designation, communication, request, demand or other document, required or permitted to be given or sent or delivered hereunder to any party hereto shall be in writing and shall be sufficiently given or sent or delivered if it is:

 

(i) delivered personally to an officer or director of such party;

 

(ii) sent by fax machine; or

 

(iii) sent by electronic mail in portable document format (“PDF”).

 

(b) Notices shall be sent to the following addresses or fax numbers:

 

(i) in the case of the Assignor:

 

Hatem Essadam

 

with a copy (which shall not constitute notice) to:

 

Derome Avocats

5064, avenue du Pare

Montreal, QC, H2V 4G 1

 

Attention: Me Charles Derome

Fax number: 514-271-4708

Email: info@deromeavocats.ca

 

 
23
 
 

 

(ii) in the case of the Assignee:

 

Loop Holdings, Inc.

1999 Avenue of the Stars, Suite 2520

Los Angeles, California

90067

 

Attention: Daniel Solomita

Fax number:

Email:

 

and with a copy (which shall not constitute notice) to:

 

Osler, Hoskin & Harcourt LLP

1000 De La Gauchetiere Street West, Suite 2100

Montreal, Quebec H3B 4W5

 

Attention: Antonella Penta

Fax Number: (514) 904-8101

Email: apenta@osler.com

 

or to such other address or fax number as the party entitled to or receiving such notice, designation, communication, request, demand or other document shall, by a notice given in accordance with this Section, have communicated to the party giving or sending or delivering such notice, designation, communication, request, demand or other document.

 

Any notice, designation, communication, request, demand or other document given or sent or delivered as aforesaid shall:

 

(a) if delivered personally, be deemed to have been given, sent, delivered and received on the date of delivery;

 

(b) if sent by fax machine, be deemed to have been given, sent, delivered and received at the time that receipt thereof has been acknowledged by electronic confirmation or otherwise; and

 

(c) if sent by electronic mail, be deemed to have been given, sent, delivered and received at the time sent, provided however, the PDF was sent before 5:00 p.m. Montreal time on a Business Day; if sent by electronic mail after 5:00 p.m. or on a day other than a Business Day, as the case may be, shall be deemed to have been given, sent, delivered and received at 9:00 a.m. Montreal time on the next Business Day.

 

10.4 Counterparts

 

This Agreement may be executed in several counterparts and by facsimile transmission or by electronic mail in .pdf format, each of which so executed shall be deemed to be an original, and such counterparts together shall constitute but one and the same instrument.

 
 
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10.5 Expenses of Parties

 

Subject to Section 5.1.2, each of the Parties hereto shall bear all expenses incurred by it in connection with this Agreement including, without limitation, the charges of their respective counsel, accountants, financial advisors and finders.

 

10.6 Announcements

 

No announcement with respect to this Agreement will be made by any party hereto without affording the other party a reasonable opportunity to review and comment on any such announcement. The foregoing will not apply to any announcement by any party required in order to comply with laws pertaining to timely disclosure, provided that such party consults with the other Parties before making any such announcement.

 

10.7 Assignment

 

The rights of the Assignor hereunder shall not be assignable without the written consent of the Assignee.

 

10.8 Successors and Assigns

 

This Agreement shall be binding upon and enure to the benefit of the Parties hereto and their respective successors, permitted assigns, personal and legal representatives. Nothing herein, express or implied, is intended to confer upon any person, other than the Parties hereto and their respective successors, assigns, personal and legal representatives, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

10.9 Entire Agreement

 

This Agreement and the Schedules referred to herein constitute the entire agreement between the Parties hereto and supersede all prior agreements, representations, warranties, statements, promises, information, arrangements and understandings, whether oral or written, express or implied, with respect to the subject matter hereof. None of the Parties hereto shall be bound to or charged with any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings not specifically set forth in this Agreement or in the Schedules, documents and instruments to be delivered on or before the Closing Date pursuant to this Agreement. The Parties hereto further acknowledge and agree that, in entering into this Agreement and in delivering the Schedules, documents and instruments to be delivered on or before the Closing Date, they have not in any way relied, and will not in any way rely, upon any oral or written agreements, representations, warranties, statements, promises, information, arrangements or understandings, express or implied, not specifically set forth in this Agreement or in such Schedules, documents or instruments.

 
 
25
 
 

 

10.10 Waiver

 

Any party hereto which is entitled to the benefits of this Agreement may, and has the right to, waive any term or condition hereof at any time on or prior to the date of signature of the present Agreement; provided, however, that such waiver shall be evidenced by written instrument duly executed on behalf of such party.

 

10.11 Amendments

 

No modification or amendment to this Agreement may be made unless agreed to by the Parties hereto in writing.

 

10.12 Language

 

This Agreement has been drafted in English at the express request of the Parties. Cette convention a ete redigee en anglais a la demande expresse desparties.

 

[SIGNATURE PAGE FOLLOWS]

 
 
26
 
 

 

IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement as of the day and year first written above.

 
/s/ Hatem Essadam

HATEM ESSADAM

The Assignor

 

     

 

 

 

 

 

 

 

 

 

/s/ Daniel Solomita

LOOP HOLDINGS, INC.

The Assignee

 
By: Daniel Solomita  

Title:

President

 

 

 

 

 

 

 

/s/ Daniel Solimita

 

DANIEL SOLOMITA

The Intervenor

 

 

Intellectual Property Assignment

 
 
27
 
 

 

SCHEDULE 1.1 (gg)

 

SPECIFICATIONS

 

Certificats d’analyses

 

Exemple 1

 

Properties

Results

units

min

max

method

Acid number

675  

mg KOH / g

Titration

P513

> 250 microns

/  

% v/v

Particle size analyser

<45 microns

24  

% v/v

Particle size analyser

Moisture

0.12  

%

.2

Karl Fisher

a and b values

b value

1.1  

Colorimetry

a value

-0.46  

0.4

1.5

Colorimetry

Ash

<3  

ppm

6

Microgravimetry

Paratoluic Acid and 4-CBA

4-Carboxybenzaidehyde

14  

ppm

25

Capillary electrophoresis

Paratoluic Acid

129  

ppm

150

Capillary electrophoresis

 

Exemple 2

 

Parameter

Max limit

Min limit

Result

Unit

Moistme

.20

.050

% (m/m)

4 cartioxybenzaldehyde

25

15

mg/Kg

Ash

6

1

mg/Kg

Nickel

1

<1

mg/Kg

Cobalt

1

<1

mg/Kg

Iron

2

<1

mg/Kg

Chromium

1

<1

mg/Kg

Titanium

1

<1

mg/Kg

Calcium

2

<1

mg/Kg

Aluminium

2

<1

mg/Kg

Molybdenum

1

<1

mg/Kg

Sodium

2

<1

mg/Kg

Potassium

2

<1

mg/Kg

Maganese

1

<1

mg/Kg

Total heavy metals

3

<3

mg/Kg

Paratoluic acid

150

77

mg/Kg

b value

1.5

.6

> 250 microns

26

% (V/V)

< 45 microns

0

% (V/V)

mean (m)

75

micras

 
 
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SCHEDULE 2.2 (a)

 

ESCROW AGREEMENT

 

THIS ESCROW AGREEMENT is made as of the ___ day of October, 2014

 

BETWEEN:

 

HATEM ESSADDAM, chemist, domiciled and residing at __________________, acting both personally and for a corporation to be incorporated;

 

(the “ Assignor ”)

 

- and -

 

LOOP HOLDINGS, INC. , a corporation incorporated under the federal laws of Nevada having its head office at 1999 Avenue of the Stars, Suite 2520, Los Angeles, California, herein represented by its president, Daniel Solomita, duly authorized as he so declares;

 

(the “ Assignee ”)

 

- and -

 

OSLER, HOSKIN & HARCOURT LLP , a law firm having a place of business at 1000 De La Gauchetière Street West, suite 2100, Montreal, Québec, H3B 4W5;

 

(the “ Escrow Agent “)

 

RECITALS:

 

A. The Assignor and the Assignee have entered into an Intellectual Property Assignment Agreement dated October 27, 2014 (the “Purchase Agreement”) pursuant to which the Assignor agrees to assign and transfer all of his rights, title and interest in and to the technique and method developed by him for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure.

 

 

B. The Purchase Agreement provides for the deposit by the Assignee of the aggregate sum of $250,000, to be held in escrow in accordance with the terms and conditions of this Agreement.

 

 

C. The parties wish to set out the terms upon which the Escrow Funds (as defined in Section 3 of this Agreement) are to be held and disbursed by the Escrow Agent.

 
 
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THEREFORE , the parties agree as follows:

 

1. Defined Terms

 

Unless otherwise specifically defined in this Agreement, all capitalized terms used in this Agreement shall have the meanings given to them in the Purchase Agreement.

 

2. Certain Rules of Interpretation

 

(a) Consent - Whenever a provision of this Agreement requires an approval or consent and the approval or consent is not delivered within the applicable time limit, then, unless otherwise specified, the party whose consent or approval is required shall be conclusively deemed to have withheld its approval or consent.

 

(b) Currency - Unless otherwise specified, all references to money amounts are to the lawful currency of Canada.

 

(c) Governing Law - This Agreement is a contract made under and shall be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable in the Province of Quebec.

 

(d) Headings - Headings and Sections are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement

 

(e) Including - Where the word “including” or “includes” is used in this Agreement, it means “including (or includes) without limitation”.

 

(f) No Strict Construction - The language used in this Agreement is the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

(g) Number and Gender - Unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.

 

(h) Severability - If, in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, the provision shall, as to that jurisdiction, be ineffective only to the extent of the restriction, prohibition or unenforceability without:

 

(i) invalidating the remaining provisions of this Agreement,

 

(ii) affecting the validity or enforceability of such provision in any other jurisdiction, or

 

(iii) affecting its application to other parties or circumstances.

 

(i) Statutory references - A reference to a statute includes all regulations and rules made pursuant to the statute and, unless otherwise specified, the provisions of any statute or regulation which amends, supplements or supersedes the statute or the regulation.

 
 
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(j) Time - Time is of the essence in the performance of the parties’respective obligations.

 

(k) Time Periods - Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the next business day following if the last day of the period is not a business day.

 

3. Appointment of Escrow Agent

 

Each of the Assignor and the Assignee appoint the Escrow Agent to act as Escrow Agent on the terms and conditions set forth in this Agreement and the Escrow Agent accepts such appointment on such terms and conditions.

 

4. Deposit

 

On the date and pursuant to the terms of Section 2.2(a) of the Purchase Agreement, the Assignee shall deposit the sum of $250,000 (the “ Escrow Funds ”) by wire transfer of immediately available funds to the account specified by the Escrow Agent or, at the option of the Assignee, by official bank draft drawn upon a Canadian chartered bank or by negotiable cheque payable in Canadian funds and certified by a Canadian chartered bank or trust company, on the terms and conditions set forth in this Agreement. On the date of receipt of the Deposit, the Escrow Agent shall acknowledge receipt of the Escrow Funds by written receipt to the Assignor and the Assignee.

 

5. Holding of Escrow Funds

 

The Escrow Funds shall be held for a period ending on March 1, 2015 (the “ Outside Date ”) unless paid out earlier in accordance with Section 8 of this Agreement.

 

6. Escrow Account

 

The Escrow Agent shall hold the Escrow Funds and any interest received thereon pursuant to this Agreement and the Escrow Funds and any interest received thereon shall be invested and reinvested in term deposits or certificates of deposit selected by the Escrow Agent and issued by a Canadian chartered bank with maturity dates not exceeding thirty (30) days.

 

7. Interest on Escrow Funds

 

All interest accruing from the date the Deposit is remitted to the Escrow Agent on the Escrow Funds or any part thereof held by the Escrow Agent shall accrue to the benefit of the party to which the portion of the Escrow Funds to which the interest relates is paid.

 
 
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8. Release of Escrow Funds

 

Where all of the conditions set out in Article 6 of the Purchase Agreement (the “ Closing Conditions ”) have been met, the Assignee shall provide the Escrow Agent with irrevocable written instructions to pay the Escrow Funds to the Assignor, with a copy of such instructions being delivered to the Assignor. Where the Closing Conditions have not been met, the Assignee shall provide the Escrow Agent with irrevocable written instructions to pay the Escrow Funds to the Assignee, with a copy of such instructions being delivered to the Assignor. In each case, the Escrow Agent shall act in accordance with the irrevocable written instructions of the Assignee. Where no instructions are received by the Escrow Agent prior to the Outside Date, the Escrow Agent shall remit the Escrow Funds to the Assignee.

 

9. Termination of Agreement

 

This Agreement may be terminated, other than the conditions of this Agreement for the protection of the Escrow Agent, at any time by and upon the receipt of a written notice of termination signed by the Assignee and the Assignor. Unless so terminated, this Agreement, other than the conditions of this Agreement for the protection of the Escrow Agent, shall terminate upon payment by the Escrow Agent in accordance with the terms of this Agreement of all of the Escrow Funds and any interest received thereon.

 

10. Determinations

 

The parties agree that the Escrow Agent shall not be required to make any determination or decision with respect to the validity of any claim made by any party, or of any denial thereof, but shall be entitled to rely conclusively on the terms of this Agreement and the documents tendered to it in accordance with the terms of this Agreement.

 

11. Costs and Expenses

 

The Escrow Agent’s fee (plus applicable Goods and Services Tax) for accepting its appointment as escrow agent under this Agreement will be paid by the Assignee. No other fees, costs or expenses will be payable to the Escrow Agent hereunder save and except for: (i) the reasonable legal fees, disbursements and other costs incurred by the Escrow Agent in the event that the Escrow Agent pays the Escrow Funds or any portion thereof into court pursuant to Section 13(f) of this Agreement; and (ii) any reasonable disbursements incurred by the Escrow Agent in carrying out its duties herein. The obligation in this Section shall survive the termination or discharge of this Agreement or the resignation or removal of the Escrow Agent.

 

12. Escrow Agent

 

The acceptance by the Escrow Agent of its duties under this Escrow Agreement is subject to the following terms and conditions which shall govern and control the rights, duties, liabilities and immunities of the Escrow Agent:

 

(a) The Escrow Agent is not a party to, and is not bound by, any agreement which may be evidenced by, or arising out of, the foregoing instructions, other than as expressly set forth herein;

 

(b) The Escrow Agent shall be protected in acting upon any written notice, declaration, request, waiver, consent, receipt or other paper or document which the Escrow Agent in good faith believes to be genuine and what it purports to be;

 
 
32
 
 

 

(c) The Escrow Agent shall not be liable for any error of judgment, or for any act done or step taken or omitted by it in good faith, or for any mistake of fact or law, or for any thing which it may do or refrain from doing in connection with this Agreement, except for its own gross negligence or wilful misconduct;

 

(d) The Escrow Agent shall incur no liability under this Agreement or in connection with this Agreement for anything whatsoever other than as a result of its own gross negligence or wilful misconduct. The Assignee and the Assignor jointly and severally shall indemnify, hold harmless and defend the Escrow Agent from and against any and all actions, causes of action, claims, demands, damages, losses, costs, liabilities and expenses, of any nature or kind including reasonable legal fees, which may be made or brought against it or which it may suffer or incur as a result of or in respect of or arising out of its appointment as Escrow Agent under this Agreement, except such as shall result solely and directly from its own gross negligence or wilful misconduct;

 

(e) In the event of any disagreement between any of the parties resulting in adverse claims or demands with respect to the Escrow Funds and any interest received thereon, the Escrow Agent shall be entitled, at its option, to refuse to comply with any claims or demands on it with respect thereto as long as such disagreement shall continue, and in so refusing, the Escrow Agent may elect to make no delivery of the Escrow Funds and any interest received thereon. In so doing, the Escrow Agent shall not be or become liable in any way to the parties for its failure or refusal to comply with such claims or demands. The Escrow Agent shall be entitled to refrain from acting or refusing to act until such claims or demands shall have been finally determined in a court of competent jurisdiction or shall have been settled by agreement and the Escrow Agent shall have been notified thereof by the Assignee and the Assignor in writing;

 

(f) The Escrow Agent may pay the Escrow Funds or any portion thereof (and any interest earned thereon, less any amounts owing under Section 12) into court for a determination by such court as to the entitlement to such Escrow Funds (and any interest earned thereon, less any amounts owing under Section 12) at any time and the Escrow Agent shall thereupon be released from any obligation hereunder;

 

(g) The Escrow Agent may employ or retain such counsel who may but need not be counsel for any parties hereto and such other experts, advisors, agents or agencies as it may in its discretion require for the purpose of discharging its duties under this Agreement, and the Escrow Agent shall be fully protected in acting or not acting in good faith on the opinion or advice or on information obtained from any such parties and shall not be responsible for any misconduct or negligent actions on the part of any of them. The costs of such services shall be added to and be part of the Escrow Agent’s fees under this Agreement;

 

(h) No provision of this Agreement shall require the Escrow Agent to expend or risk its own funds or otherwise incur financial liability in the performance of its duties or in the exercise of any of its rights or powers unless indemnified as aforesaid;

 
 
33
 
 

 

(i) Nothing in acting as Escrow Agent hereunder shall preclude the Escrow Agent from acting, in any manner, as counsel to the Assignee in connection with any matter or dispute, including disputes pertaining to the Purchase Agreement or this Agreement and the Assignor will not raise any objection in any forum to the Escrow Agent acting as such counsel; and

 

(j) The Escrow Agent may resign as Escrow Agent hereunder upon 10 days written notice to the Assignee and the Assignor. If a successor escrow agent is not appointed by the Assignee and the Assignor within this 10 day period, the Escrow Agent may, but shall have no duty to, petition the court to name a successor. If no successor escrow agent is appointed by the parties by written notice to the Escrow Agent within the 10 day period, the Escrow Agent shall have no further duties or obligations whatsoever upon the expiration of such period until such time as a successor escrow agent is appointed and, at such time, the sole duty of the Escrow Agent shall be to deliver the Escrow Funds (and any interest earned thereon, less any amounts owing under Section 12) to the successor escrow agent.

 

13. Notice

 

Any notice or other writing required or permitted in connection with this Agreement (in this Section, referred to as a “ Notice ”) shall be in writing and shall be sufficiently given if delivered (whether in person, by courier service or other personal method of delivery), or if transmitted by facsimile or e-mail:

 

(a) in the case of the Assignor:

 

Hatem Essadam

_________________________

_________________________

 

with a copy (which shall not constitute notice) to:

 

Derome Avocats

5064, avenue du Pare

Montreal, QC, H2V 4G 1

 

Attention: Me Charles Derome

Fax number: _______________

Email: ____________________

 

(b) in the case of the Assignee:

 

Loop Holdings, Inc.

1999 Avenue of the Stars, Suite 2520

Los Angeles, California 90067

 

Attention: Daniel Solomita

Fax number: _______________

Email: ____________________

 
 
34
 
 

 

(c) in the case of a notice to the Escrow Agent at:

 

Osler, Hoskin & Harcourt LLP

1000 De La Gauchetiere Street West, Suite 2100

Montreal, Quebec H3B 4W5

 

Attention: Antonella Penta

Fax number: _______________

Email: ____________________

 

Any Notice delivered or transmitted to a party as provided above shall be deemed to have been given and received on the day it is delivered or transmitted, provided that it is delivered or transmitted on a business day prior to 5:00 p.m. local time in the place of delivery or receipt. However, if the Notice is delivered or transmitted after 5:00 p.m. local time or if such day is not a business day in the place of delivery or receipt, then the Notice shall be deemed to have been given and received on the next business day in the place of delivery or receipt.

 

Any party may, from time to time, change its address by giving Notice to the other parties in accordance with the provisions of this Section.

 

14. Liability of Assignee and Assignor

 

Neither the depositing under this Agreement of the Escrow Funds nor any of the other conditions of this Agreement shall directly or indirectly limit any liability of any party to any other party under the Purchase Agreement. Specifically, but without limitation, nothing in this Agreement will limit the types of claims either party may be entitled to assert, the time periods otherwise available for asserting claims, the forum or manner in which either party may assert claims or the amounts either party may be entitled to recover.

 

15. Further Assurances

 

The parties shall with reasonable diligence do all things and provide all reasonable assurances as may be required to consummate the transactions contemplated by this Agreement, and each party shall provide further documents or instruments required by any other party as may be reasonably necessary or desirable to effect the purpose of this Agreement and carry out its provisions.

 

16. No Waiver

 

No failure or delay on the part of any party in exercising any right, power or remedy provided in this Agreement may be, or may be deemed to be, a waiver thereof; nor any single or partial exercise of any right, power or remedy preclude any other or further exercise of such right, power or remedy or any other right, power or remedy.

 
 
35
 
 

 

17. Amendments

 

This Agreement may be amended by and upon written notice to the Escrow Agent at any time given jointly by the Assignee and the Assignor, but the duties and responsibilities of the Escrow Agent shall not be increased and the indemnities of the Escrow Agent shall not be decreased without its written consent. No amendment, supplement, modification or waiver or termination of this Agreement and, unless otherwise specified, no consent or approval by any party, shall be binding unless executed in writing by the party to be bound.

 

18. Enurement

 

This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors (including any successor by reason of amalgamation of any party) and permitted assigns.

 

19. Execution and Delivery

 

This Agreement may be executed by the parties in counterparts and may be executed and delivered by facsimile and all such counterparts and facsimiles shall together constitute one and the same agreement.

 

20. Language

 

This Agreement has been drafted in English at the express request of the parties. Cette entente a été rédigée en anglais à la demande expresse des parties.

 

[Signature page follows.]

 
 
36
 
 

 

IN WITNESS OF WHICH the parties have duly executed this Escrow Agreement.

 

 

   

 

HATEM ESSADAM

The Assignor

 

 

 

 

 

 

 

 

LOOP HOLDINGS, INC. , as the Assignee

 

       
  By:  

 

Name:

Daniel Solomita  
  Title: President  
       

 

 

 

 

 

OSLER, HOSKIN & HARCOURT LLP , as the Escrow Agent

 

 

 

 

 

 

By:

 

 

 

Name:

Antonella Penta

 

 

Title:

Lawyer

 

 
 
37
 
 

 

ASSIGNMENT AND MORAL RIGHTS WAIVER

 

TO: LOOP HOLDINGS INC. (the “Assignee”)

 

RE: Intellectual Property Assignment Agreement between Hatem Essaddam, 9319-7218 Québec Inc. (the “Assignor”), the Assignee, and Daniel Solomita dated as of October 27, 2014 (the “Assignment Agreement”).

 

Capitalized terms used but not otherwise defined in this Certificate shall have the meanings given to them in the Assignment Agreement.

 

WHEREAS pursuant to section 5.1.7 of the Assignment Agreement, the undersigned have agreed to assign the Intellectual Property Rights and waive any moral rights they have therein;

 

THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged by each of the undersigned:

 

1. Each of the undersigned hereby irrevocably sells, assigns and transfers to the Assignee, its successors and assigns, in perpetuity, throughout the world, all of undersigned’s right, title and interest, in and to the Intellectual Property Rights, including copyright and any and all other right, title, interest, privileges, benefits and causes of action, including without limitation any ownership of and title to the Intellectual Property Rights in all tangible forms, which undersigned now has or hereafter may acquire with respect to the Intellectual Property Rights.

 

2. Each of the undersigned hereby represents and warrants that:

 

(a) He or it has the full right, power and authority to make and perform this agreement;

 

(b) Neither has granted any rights to any third parties which would interfere with the rights granted to the Assignee;

 

(c) Each of the undersigned will perform and cause to be performed such further and other acts, and execute and deliver, or cause to be executed and delivered, such further and other documents as the Assignee considers necessary or desirable to carry out the terms and intent of this assignment agreement; and

 

(d) Each of the undersigned shall upon request of the Assignee forthwith deliver to Assignee, or as the Assignee shall direct, all tangible forms of the Intellectual Property Rights in the possession, or under the control of, the undersigned.

 

3. Each of the undersigned hereby waives on a perpetual, irrevocable and worldwide basis any and all author’s or moral rights and equivalent rights in foreign jurisdictions, in and to the Intellectual Property Rights, which waiver may be invoked, without limitation, by the Assignee, any person authorized by the Assignee to use the Intellectual Property Rights, and any subsequent assignees.

 

[ Signature page follows ]

 
 
38
 
 

 

 

IN WITNESS WHEREOF this certificate has been executed the 1st day of April, 2015.

 

 

  9319-7218 QUÉBEC INC.
       
  By: /s/ Hatem Essaddam

 

Name:

Hatem Essaddam  
  Title:    
       

 

By:

/s/ Hatem Essaddam

 

 

Name:

HATEM ESSADDAM

 

 

Assignment and Waiver of Moral Rights

 
 
39
 
 

 

ADDENDUM TO THE INTELLECTUAL PROPERTY

ASSIGNMENT AGREEMENT SIGNED ON OCTOBER 27TH, 2014

 

B E T W E E N:

 

HATEM ESSADDAM , chemist, domiciled and residing at 24, Saint-Stanislas street, in the city of Sainte-Thérèse, province of Québec, J7E 3M7, acting both personally and for a corporation to be incorporated;

 

(the “ Assignor ”)

 

-and-

 

LOOP HOLDINGS, INC. , a corporation incorporated under the federal laws of Nevada having its head office at 1999 Avenue of the Stars, Suite 2520, in the city of Los Angeles, province of California, herein represented by its president, Daniel Solomita, duly authorized as he so declares;

 

(the “ Assignee ”)

 

-and-

 

DANIEL SOLOMITA , businessman, domiciled and residing at 98, Val d’Ajol blvd, in the city of Lorraine, province of Quebec, J62 3Z6;

 

(the “ Intervenor ”)

 

WHEREAS the above mentioned parties have signed an Intellectual Property Assignment Agreement on October 27th, 2014 (hereinafter the “ Agreement ”);

 

WHEREAS, since the signature of the Agreement, the above mentioned parties have declared themselves satisfied and/or have waived all conditions necessary to proceed to the closing of the Agreement;

 

WHEREAS, since the signature of the Agreement, the Assignor has proceeded to the incorporation of 9319-7218 Québec Inc. and has transferred to said corporation all his rights, titles and interests (including all Intellectual Property rights) present and future in and to the Technique;

 
 
40
 
 

 

WHEREAS, according to paragraph 2.2c) of the Agreement, part of the Purchase Price is payable once the Plant developed by the Assignee reaches certain Milestones;

 

WHEREAS, according to paragraph 2.4 of the Agreement, Royalties are payable by the Assignee to the Assignor;

 

WHEREAS the Plant will in fact be operated by 8198381 Canada Inc.;

 

THE PARTIES TO THE PRESENT AGREE:

 

 

1 The preamble shall form an integral part of the present addendum;

 

 

 

 

2. The present paragraph 1.1(cc) of the Agreement is hereby deleted in its entirety and is replaced with the following:

 

 

 

 

Plant ” has the meaning ascribed thereto in the Recitals, being understood that it includes any facility built, owned or used by the Assignee and/or by its subsidiaries or Person under its control and/or by 8198381 Canada Inc., that is used for any process of depolymerisation of the polyethylene terephthalate based on the Technique;

 

 

 

 

3 Capitalized terms used but not otherwise defined in this addendum shall have the meanings given to them in the Agreement;

 

[ Signature page follows ]

 

 
41
 
 

 

DATED April 10th, 2015.

 

     

 

 

 

 

/s/ Hatem Essaddam

 

/s/ Daniel Solomita

 

HATEM ESSADDAM , acting

 

 

LOOP HOLDINGS, INC.

 

Personally and on behalf of

 

 

The Assignee

 

9319-7218 Québec Inc.

 

By:

Daniel Solomita

 

The Assignor

 

Title:

President

 

     

 

 

 

 

/s/ Daniel Solomita

 

 

DANIEL SOLOMITA

 

 

The Intervenor

 

 

 

42

 

EXHIBIT 10.2

 

SUBSCRIPTION AGREEMENT

 

May 22, 2015

 

To:

Loop Holdings, Inc. / Loop Industries, Inc.

1999 Avenue of the Stars, Suite 2520

Los Angeles, California 90067

 

Attention: Daniel Solomita, President

 

1. Subscription .

 

1. This Subscription Agreement pertains to the offering by Loop Holdings, Inc. a Nevada corporation (the “Company”), of warrants to purchase shares of the Company’s common stock, between the Company and the undersigned (“Purchaser”). The warrants and the shares of common stock underlying the warrants, depending upon the circumstances, collectively referred to herein as the “Securities.”

 

The Purchaser, intending to be legally bound, hereby offers to purchase from the Company a warrant to purchase 200,000 shares of common stock. Such warrant shall have an exercise price of $0.80 per share of common stock, have a term of two years, and the shares underlying such warrant shall vest upon issuance of the warrant. The consideration paid by the Purchaser for the warrant is an introduction by Purchaser to the Company of a business relationship, which consideration the Company acknowledges is fully paid and received.

 

Additionally in each instance Purchaser introduces the Company to a business relationship whereby the Company purchases not less than 30,000 metric tons of PTA, EG or PET resin or Loop purchases a minimum of 30,000 metric tons of waste PET scrap, the Company shall issue to Purchaser a fully-vested warrant to purchase 80,000 shares of common stock, at an exercise price of $0.80 per share, with a term of two years.

 

If, at any time before the Company shall propose to register common stock under the Securities Act of 1933, as amended (the “U.S. Securities Act”) (other than in a registration on Form S-3 relating to sales of securities to participants in a Company dividend reinvestment plan, Forms S‑4 or S-8 or any successor forms, or in connection with an acquisition or exchange offer or an offering of securities solely to the existing shareholders or employees of the Company), the Company shall give prompt written notice to the undersigned of its intention to effect such a registration and, subject to the other terms of this Subscription Agreement, shall include in such registration all shares of common stock underlying the warrant that are permitted under applicable securities laws to be included in the form of registration statement selected by the Company and with respect to which the Company has received a written request for inclusion therein by the undersigned within 10 days after the receipt of the Company’s notice.

 

By execution of this Subscription Agreement, the Purchaser hereby acknowledges that it understands that the Company is relying upon the accuracy and completeness of all information it has entered herein and all representations and warranties it has made hereunder in complying with the Company’s obligations under applicable U.S. federal and state securities laws.

 

 
-1-
 
 

 

2. General Representations . The Purchaser represents, acknowledges and agrees that:

 

(a) it is not a “U.S. person” as that term is defined in Regulation S 1 , promulgated under the Securities Act of 1933; and

 

(b) it will not be purchasing Securities for the account or benefit of any U.S. Person; the offer was not made to the Purchaser when it was in the United States; at the time the Purchaser’s buy order was delivered to the Company, the Purchaser was outside the United States; the Subscriber received and accepted this subscription and entered into this Agreement in its jurisdiction of residence; and such jurisdiction of residence is as set out on page 1 of this Agreement.

 

(c) that the Securities acquired pursuant to this Agreement have not been registered under the U.S. Securities Act, and are being sold in reliance upon an exemption from registration afforded by Regulation S; and that the Securities have not been registered with any state securities commission or authority. The Purchaser further understands that pursuant to the requirements of Regulation S, the Securities acquired herein may not be transferred, sold or otherwise exchanged unless in compliance with the provisions of Regulation S and/or pursuant to registration under the U.S. Securities Act, or pursuant to an available exemption under the U.S. Securities Act.

 

(d) the Securities are being purchased by the Purchaser for its own account, for investment only and not with a view toward resale or distribution thereof to any other person, and it is not participating, directly or indirectly, in any underwriting or distribution;

 

(e) none of the Securities purchased by the Purchaser shall be sold or otherwise transferred contrary to the provisions of this Subscription Agreement or any federal or state securities law, and the Purchaser understands that unless the Securities are subsequently registered under the U.S. Securities Act, they may not in any event be sold or transferred except by a valid exemption from registration under the U.S. Securities Act;

____________

1 ‘“U.S. person” is defined under Regulation S as:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United States;
(vi) Any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and
(viii) Any partnership or corporation if:

 

(A) Organized or incorporated under the laws of any foreign jurisdiction; and

 

(B) formed by a U.S. person principally for the purpose of investing any securities not registered under the Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Act) who are not natural persons, estates or trusts.

 

 
-2-
 
 

 

(f) any and all certificates representing the Securities purchased and any and all securities issued in replacement thereof or in exchange thereof shall bear the following legend or one substantially similar thereto, which the Purchaser has read and understands:

 

“THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE “ACT’) OR APPLICABLE STATE SECURITIES LAWS, AND THE TRANSFER THEREOF IS PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE ACT, PURSUANT TO REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.”

 

(g) the Company shall have the right to issue stop transfer instructions on its official stock records, and the Purchaser acknowledges that the Company has informed the Purchaser of its intention to issue such instructions;

 

(h) there is currently no active trading market in these Securities of the Company, and the Company presently has no plans to register the Securities, so that there may never be a public trading market for the Securities, with consequent possible indefinite illiquidity of the Securities;

 

(i) hedging transactions involving the Securities may not be conducted unless in compliance with the U.S. Securities Act.

 

(j) at no time has it been explicitly or implicitly represented, guaranteed or warranted to the Purchaser by the Company, its management, the agents or employees of the Company or any other person: (i) that the Purchaser will be able to transfer the Securities on any particular date; (ii) that if and when the Purchaser may wish to transfer the Securities, such securities will be validly transferable under federal and applicable state securities laws; (iii) that the Purchaser will realize any percentage or amount of profit, gain or other consideration as a result of any investment it has made or will make in the Company; or (iv) that the Purchaser or other shareholders will receive any dividends or other distributions from the Company at any time;

 

(k) investment in the Securities is a long-term, speculative investment which involves a substantial risk of loss to the Purchaser of its entire investment; that the Purchaser takes full cognizance of and responsibility for the risks related to the purchase of the Securities; the Purchaser has no need for liquidity with respect to its investment either now or within the foreseeable future; and the Purchaser can bear a complete loss of its investment without undue hardship to itself;

 

 
-3-
 
 

 

(l) the Purchaser and its purchaser representative, if any, has been afforded an opportunity to examine such documents and obtain such information, including the Company’s financial statements concerning the Company as it may have requested, and the Purchaser has had the opportunity to request such other information and ask questions of the officers and directors of the Company (and all information so requested has been provided) for the purpose of verifying the information furnished to it and for answering any question it may have had concerning the business, prospects and affairs of the Company;

 

(m) the Purchaser understands and acknowledges that any projections or financial forecasts of the Company may likely prove to be incorrect in view of the early stage of the Company’s development; and no assurance has been given to it that actual results will correspond in any meaningful way with the results contemplated by the various projections, financial forecasts or predictions; and

 

(n) the Purchaser has been advised to consult with its own investment adviser, attorney, and accountant regarding the Company’s prospects and legal and tax matters, concerning an investment in the Company, and has done so, to the extent it consider that to be necessary.

 

3. Suitability Standards, Representations, and Warranties . The Purchaser represents and warrants that all of the information which it has furnished in this Subscription Agreement is correct and complete as of the date of this Subscription Agreement, and will be correct and complete on the closing of the sale of the Securities subscribed for, and the representations and warranties and agreements herein shall survive the closing date and may be relied upon by the Company in its reliance upon an exemption from registration under the U.S. Securities Act and state securities laws.

 

4. Indemnification . The Purchaser understands the meaning and legal consequences of the representations and warranties contained in this Subscription Agreement and agrees to indemnify and hold harmless the Company, its officers and directors, and each agent and employee thereof, from and against any and all loss, damage, liability or expense (including judgments, fines, amounts paid in settlement, attorney’s fees and other legal costs actually incurred as a result of any such person or entity being made a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of or arising from any breach of representation or warranty of it or any misrepresentation or misstatement of fact or omission to state or represent facts made by it to the Company, including without limitation, the information which it has furnished in this Subscription Agreement.

 

5. Miscellaneous .

 

(a) The disclosure provided in this Subscription Agreement with respect to certain aspects of resale restrictions which applies to the Securities and securities laws of the United States is only a summary and is not intended to be exhaustive and does not refer to resale restrictions which may arise by reason of securities laws other than those of the United States.

 

 
-4-
 
 

 

THE SUBSCRIBER SHOULD CONSULT ITS OWN PROFESSIONAL ADVISORS REGARDING THIS AGREEMENT AND RESALE RESTRICTIONS APPLICABLE TO THE SHARES.

 

(b) All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the Company at the address set forth above and to the undersigned at the address set forth on the signature page hereof.

 

(c) This Subscription Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes any prior or contemporaneous representations, warranties, or agreements (whether oral or written), and may be amended or waived only by a writing executed by the party to be bound.

 

 

Very truly yours,

 

 

 

9121820 CANADA INC.

 

 

Signature:

/s/ Brian Young

 

 

 

 

Print Name:

Brian Young

 

 

 

 

Title:

VP

 

 

 

 

Address:

7500 Cote De Luesse, St. Laurent, QC

 

 

 

 

Accepted and Agreed:

 

 

 

 

Dated:

June 4th

, 2015

 

 

 

LOOP HOLDINGS, INC.

 

 

 

 

By:

/s/ Daniel Solomita

 

Name:

Daniel Solomita

 

Title:

President

 

 

 

-5-

 

EXHIBIT 10.4

 

FIRST AMERICAN GROUP, INC.

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is dated as of June 29, 2015, by and between Daniel Solomita (“Executive”) and First American Group, Inc., a Nevada corporation (the “Company”).

 

1. Duties .

 

1.1 Position . Executive is employed as President and Chief Executive Officer of the Company, reporting to the Company’s Board of Directors (the “Board”). The duties and responsibilities of Executive shall include the duties and responsibilities for the direct supervision, direction and control of the Company’s operations and activities. The Executive shall perform such duties as from time to time may be prescribed for him by the Board, in all cases to be consistent with Executive’s corporate offices and positions.

 

1.2 Obligations to the Company . Executive agrees to the best of his ability and experience that he will at all times loyally and conscientiously perform all of the duties and obligations required of and from Executive pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. During the term of Executive’s employment relationship with the Company, Executive further agrees that he will devote all of his business time and attention to the business of the Company, the Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, and Executive will not render commercial or professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Board, and will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Executive will comply with and be bound by the Company’s operating policies, procedures and practices from time to time in effect during the term of Executive’s employment.

 

2. Term of Employment . The employment of Executive under this Agreement shall be for an for an indefinite term.

 

3. Compensation . For the duties and services to be performed by Executive hereunder, the Company shall pay Executive, and Executive agrees to accept, the salary and other benefits described below in this Section 3.

 

3.1 Salary . During the Term, Executive shall receive a monthly base salary of $15,000, which is equivalent to $180,000 on an annualized basis. Executive’s monthly base salary will be payable pursuant to the Company’s normal payroll practices for payment of salary to executive employees. Executive’s base salary will be reviewed as part of the Company’s normal salary review process.

 
 
1
 
 

 

3.2 Bonus and Other Incentive Compensation . Executive shall be entitled to receive an annual bonus pursuant to a unique or general plan that the Company shall make available to Executive. The executive shall also be eligible to receive other benefits, including stock options or restricted stock units. The Company and Executive shall agree upon goals and objectives to be required for Executive to meet to be eligible for payment of a bonus and such goals and objectives shall be set forth in Exhibit A attached hereto (or to be attached hereto) and incorporated herein by this reference. Exhibit A may be replaced, revised or updated from time to time by agreement of the parties.

 

3.3 Employee Benefit Plans . Executive shall participate in the employee benefit plans, programs and policies maintained by or for the Company for similarly situated employees in accordance with the terms and conditions to participate in such plans, programs and policies as in effect from time to time. The introduction and administration of benefit plans, programs and policies are within the Company’s sole discretion and the introduction, deletion or amendment of any benefit plan, program or policy will not constitute a breach of this Employment Agreement, provided the Executive is provided with substantially similar benefits or compensation in lieu.

 

3.4 Indemnification . Executive has previously entered into the Company’s standard form of Indemnification Agreement, attached hereto as Exhibit B , providing indemnification to Executive to the maximum extent permitted by law, and in accordance therewith, the Company has agreed to advance any expenses for which indemnification is available to the extent allowed by applicable law.

 

3.5 Vacation . Executive shall be eligible for vacation as provided to similarly situated employees under policies set forth in the Company’s, if there is one, or other policies in place, which vacation time shall be taken at such time or times in each year so as not to materially and adversely interfere with the business of the Company. Unused vacation will be paid out and may not be carried over from any one-year period to any other period except as may be required by law.

 

3.6 Other Benefits . The Company shall pay for costs related to Executive’s reasonable monthly cell phone and other mobile Internet costs, home office Internet costs, car and commuting costs and club membership costs, payable not later than 10 days after the end of each month. The Company shall not be liable to pay more than $1,000 per month for car and commuting costs.

 

4. Severance Benefits . Executive shall be entitled to receive severance benefits upon termination of employment as set forth in this Section 4 or as may be required by applicable law. Executive’s entitlement to such severance benefits shall be conditioned upon Executive’s execution and delivery to the Company of (i) a mutual release of all claims and (ii) a resignation from all of Executive’s positions with the Company. Any payment of severance benefits under the terms of this Agreement will be subject to all applicable tax withholding

 

4.1 Voluntary Termination or Termination for Cause . If Executive voluntarily elects to terminate his employment with the Company other than by Executive’s Resignation for Good Reason, as defined in Section 5.3 below, or if the Company or a successor entity terminates Executive’s employment for Cause, as defined in Section 5.2 below, or the Executive dies or becomes incapacitated or otherwise disabled in such a manner that, in the sole determination of the Board, the Executive cannot perform reasonably the duties specified in Section 1 above, then Executive shall not be entitled to receive payment of any severance benefits. Executive will receive payment for all salary and unpaid vacation accrued as of the date of Executive’s termination of employment and Executive’s benefits will be continued solely to the extent of the Company’s then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law.

 
 
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4.2 Involuntary Termination Apart From a Change of Control . If Executive’s employment is terminated by the Company or a successor entity without Cause or by Executive’s Resignation for Good Reason prior to or more than twelve (12) months after, a Change of Control (as defined below), Executive will receive payment for all salary and unpaid vacation accrued as of the date of Executive’s termination of employment, and, in addition, Executive will be entitled to receive the following severance benefits:

 

(i) continued payment of his base salary for a period equal to: twenty four (24) months plus an additional month per completed year of service, to a maximum of thirty six (36) months (the “Salary Continuance Period”). Such payments shall be made in accordance with the Company’s normal payroll practices.

 

(ii) continued benefit coverage (including, if applicable reimbursement of his premium cost for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or the California Continuation of Benefits Replacement Act of 1997, as amended, whichever is applicable) for the lesser of the Salary Continuance Period or that number of months until Executive becomes eligible for reasonably comparable benefits under any future employer’s health insurance plan;

 

(iii) payment of 100% of Executive’s current year discretionary cash bonus at target regardless of the Company’s or the Executive’s achievement of the goals referred to in Section 3.2 of this Agreement, plus payment of bonus at target for the Salary Continuance Period;

 

(iv) accelerated vesting as to 50% of Executive’s then unvested option shares, if any; and

 

(v) reimbursement for up to $10,000 of expenses incurred in obtaining new employment, provided Executive submits evidence that is satisfactory to the Company that the amount involved was expended and related to obtaining new employment.

 

4.3 Change of control and Involuntary Termination Following a Change of Control . In the event of a Change of Control, i) all of the Executive’s unvested options, shares or other equity shall immediately vest and ii) the Executive shall be entitled to a one-time, lump sum payment equal to twelve (12) of his then current base salary.

 
 
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In addition, if Executive’s employment is terminated by the Company or a successor entity without Cause or by Executive’s Resignation for Good Reason in either case within twelve (12) months following a Change of Control, Executive will receive payment for all salary and unpaid vacation accrued as of the date of Executive’s termination of employment, and, in addition, Executive will be entitled to receive the following severance benefits:

 

(i) continued payment of his base salary for a period equal to: eighteen (18) months plus an additional month per year of service to a maximum of thirty (30) months (the “Extended Salary Continuance Period”), in accordance with the Company’s normal payroll practices;

 

(ii) continued benefit coverage (including, if applicable reimbursement of his premium cost for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or the California Continuation of Benefits Replacement Act of 1997, as amended, whichever is applicable) for the lesser of the Extended Salary Continuance Period or that number of months until Executive becomes eligible for reasonably comparable benefits under any future employer’s health insurance plan;

 

(iii) payment of 150% of Executive’s current year discretionary cash bonus regardless of the Company’s or the Executive’s achievement of the goals referred to in Section 3.3 of this Agreement, plus payment of bonus at target for the Extended Salary Continuance Period;

 

(iv) accelerated vesting of 100% of all the unvested option shares, if any, pursuant to the terms of Section 3.2 of this Agreement; and

 

(v) reimbursement for up to $20,000 of expenses incurred in obtaining new employment, provided Executive submits evidence that is satisfactory to the Company that the amount involved was expended and related to obtaining new employment.

 

5. Definitions . For purposes of this Agreement, the following definitions shall apply:

 

5.1 “ Change of Control ” means a sale of all or substantially all of the Company’s assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction.

 

5.2 “ Cause ” means any grounds entitling the Company’s Board to summarily dismiss the Executive.

 
 
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5.3 “ Resignation for Good Reason ” means, subject to the right of either party to arbitrate a dispute with respect thereto in accordance with Section 12 below, Executive’s resignation as a result of, and within 30 days following: (i) a change in Executive’s position such that he is not a corporate officer of the Company (or a successor company, in the event of a Change of Control); (ii) a significant and substantial reduction in Executive’s job, duties, or responsibilities in a manner that is substantially and materially inconsistent with the position, duties, or responsibilities held by Executive immediately before such reduction; (iii) any reduction in Executive’s base salary other than in connection with and consistent with a general reduction of all officer base salaries; or (iv) a relocation of the Executive’s work location to a location more than 50 kilometers away from their current location provided such change increases Executive’s commute by 25 kilometers or 30 minutes.

 

6. Confidentiality Agreement . Executive has signed a Proprietary Information and Inventions Agreement (the “Proprietary Agreement”) that is incorporated by reference and made a part of this Agreement and the form of which is attached hereto as Exhibit C . Executive hereby represents and warrants to the Company that Executive has complied with all obligations under the Proprietary Agreement and agrees to continue to abide by the terms of the Proprietary Agreement and further agrees that the provisions of the Proprietary Agreement shall survive any termination of this Agreement or of Executive’s employment relationship with the Company in accordance with the terms of the Proprietary Agreement.

 

7. Confidentiality of Terms . Executive agrees to follow the Company’s strict policy that employees must not disclose, either directly or indirectly, any information, including any of the terms of this Agreement, regarding salary or stock purchase allocations to any person, including other employees of the Company (other than such employees who have a need to know such information); provided, however, that Executive may discuss such terms with members of his immediate family and any legal, tax or accounting specialists who provide Executive with individual legal, tax or accounting advice.

 

8. Covenants . In addition to the obligations to which the Executive agreed by executing the Proprietary Agreement, Executive understands and agrees that during the term of Executive’s employment with the Company, and for the greater of (i) the duration of any payments to Executive of severance benefits pursuant to Section 4 of this Agreement or (ii) one (1) year after the termination of Executive’s employment with the Company, Executive will not do any of the following:

 

8.1 Compete . Without the Company’s prior written consent, Executive will not directly or indirectly be employed or involved with any business developing or exploiting any products or services that are competitive with products or services (i) being commercially developed or exploited by the Company during Executive’s employment and (ii) on which Executive worked or about which Executive learned proprietary information or trade secrets of the Company during Executive’s employment with the Company.

 

8.2 Solicit Business . Solicit or influence or attempt to influence any client, customer or other person either directly or indirectly, to direct his, her or its purchase of the Company’s products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company.

 
 
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8.3 Solicit Personnel . Solicit or influence or attempt to influence any of the Company’s employees, consultants or other service providers to terminate or otherwise cease his, her or its employment, consulting or service relationships with the Company or to become an employee, consultant or service provider of any competitor of the Company.

 

9. Breach of the Agreement . Executive acknowledges that upon his breach of this Agreement or the Proprietary Agreement, the Company would sustain irreparable harm from such breach, and, therefore, Executive agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be entitled to obtain equitable relief, including specific performance and injunctions, restraining Executive from committing or continuing any such violation of the Agreement or the Proprietary Agreement. Executive acknowledges and agrees that upon Executive’s material or intentional breach of any of the provisions of the Agreement (including Section 8) or the Proprietary Agreement, in addition to any other remedies the Company may have under this Agreement or otherwise, the Company’s obligations to provide benefits to Executive as described in this Agreement, including without limitation those benefits provided in Section 4, shall immediately terminate, except as required by applicable law.

 

10. Entire Agreement . This Agreement, including the Proprietary Agreement that the Executive has signed, sets forth the entire agreement and understanding of the parties relating to the subject matter herein, supersedes any prior agreement, and merges all prior discussions between them.

 

11. Conflicts . Executive represents and warrants that his performance of all the terms of this Agreement will not breach any other agreement or understanding to which Executive is a party. Executive has not, and will not during the term of this Agreement, enter into any oral or written agreement in conflict with any of the provisions of this Agreement.

 

12. Dispute Resolution . In the event of any dispute, controversy or claim arising under or in connection with this Agreement, or the breach hereof (including a dispute as to whether Cause or Resignation for Good Reason exists), the parties hereto shall first submit their dispute to formal mediation. The Company shall select a mediator reasonably acceptable to both parties. In the event that the parties cannot reach resolution through formal mediation, the dispute shall be settled by arbitration in Los Angeles, California, in accordance with the Rules of the American Arbitration Association then in effect. Each party shall pay his, her or its own costs (including attorneys’ fees) in connection with such mediation or arbitration. To the extent such mediation or arbitration requires the submission of any information that either party claims is confidential information, the parties agree that such mediation or arbitration shall be confidential proceeding. Judgment upon the award rendered by the mediator or arbitrator may be entered in any court of competent jurisdiction. If any proceeding is necessary to enforce the mediation or arbitration award, the prevailing party shall be entitled to reasonable attorneys’ fees and costs and disbursements, in addition to any other relief to which such party may be entitled. Notwithstanding the foregoing, the Company shall be entitled to seek equitable relief directly from a court of competent jurisdiction (without prior arbitration) with respect to any alleged breach of the Proprietary Agreement or Section 8, including specific performance and injunctions, restraining Executive from committing or continuing to commit such alleged breach.

 
 
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13. Successors . Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agrees expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Executive’s rights hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

 

14. Miscellaneous Provisions .

 

14.1 Amendments and Waivers . Any term of this Agreement may be amended or waived only with the written consent of the parties. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

14.2 Notices . Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by a nationally-recognized delivery service (such as Federal Express or UPS), or 48 hours after being deposited in the U.S. or Canadian mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party’s address as set forth below or as subsequently modified by written notice.

 

14.3 Choice of Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of Quebec, without giving effect to its or any other jurisdiction’s principles of conflict of laws.

 

14.4 Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

 

14.5 Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

 

14.6 Advice of Counsel . Each party to this agreement acknowledges that, in executing this Agreement, such party has had the opportunity to seek the advice of independent legal counsel, and has read and understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against any party by reason of the drafting of preparation hereof.

 
 
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The parties have executed this Employment Agreement as of the date first written above.

 

 

 

The Company:

 

FIRST AMERICAN GROUP, INC.

       
  By: /s/ Daniel Solomita

 

 

Daniel Solomita  
    President and Chief Executive Officer  
       

 

Executive:

 

 

 

 

 

 

By:

/s/ Daniel Solomita

 

 

Name (Print): Daniel Solomita

 

 

 

 

 

 

Address:

 

 

 

  

 

 

 

Tel:

 

 

  
 
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EXHIBIT A

 

Pursuant to Section 3.2 of the Employment Agreement, dated June 29, 2015, by and between First American Group, Inc., a Nevada corporation (the “Company”), and Daniel Solomita, the Company shall grant a bonus to Mr. Solomita as follows:

 

(i) 1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company’s securities are listed an exchange or the OTCQX tier of the OTCMarkets;

 

(ii) 1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company executes a contract for a minimum quantity of 25,000 M/T of PTA/EG or a PET;

 

(iii) 1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company’s first fill-scale production facility is in commercial operation; and

 

(iv) 1,000,000 shares of common stock shall be issued to Mr. Solomita when the Company’s second full-scale production facility is in commercial operation.

 

The term “commercial operation” means a full-scale production facility of the Company produces 10 M/T per hour of PTA and EG combined, for a term of not less than six (6) months.

 

In lieu of an issuance of the shares common stock referenced in this Exhibit A, Daniel Solomita may, in his sole discretion, elect to receive such shares of common stock, in whole or in part, in the form of a restricted stock grant with a future vesting date, or a warrant or an option with no or a nominal exercise price.

 
 
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AMENDMENT NO. 1

TO EMPLOYMENT AGREEMENT

 

This Amendment No. 1 (this “Amendment”) to the Employment Agreement (the “Agreement”) dated June 29, 2015, by and between Loop Industries, Inc., a Nevada corporation (“Employer”), and Daniel Solomita (“Executive”), is entered into February 15, 2016. Employer and Executive may be collectively referred to herein as the “Parties”.

 

WHEREAS, the Parties have entered into the Agreement and wish to further amend the Agreement, as set forth herein.

 

NOW THEREFORE, in consideration of covenants and agreements contained hereinand such other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the Parties hereto, the Parties agree as follows:

 

16. Definitions . All defined terms used herein shall have the meaning assigned to them in the Agreement unless otherwise defined herein, and all of the terms of the Agreement shall continue to apply unless as amended hereby.

 

17. Amendment and to the Agreement . Notwithstanding Section 2 of the Agreement, the Agreement is amended, so that Employer shall, immediately upon creation of the Series A Preferred Stock of the Employer, issue Executive one share of Employer’s Series A Preferred Stock for consideration of Executive agreeing not to terminate his employment with Employer for a period of five (5) years from the date of this Amendment.

 

18. Continuing Effect of the Agreement . Except as specifically set forth herein, the Agreement shall remain in full force and effect and shall not be waived, modified, superseded or otherwise affected by this Amendment. This Amendment is not to be construed as a release, waiver or modification of any of the terms, representations, warranties, covenants, rights or remedies set forth in the Agreement, except as specifically set forth herein.

 

19. Governing Law . This Amendment shall be governed by and construed in accordance with the laws of Nevada.

 

20. Entire Agreement . The Agreement and this Amendment, and the exhibits and schedules delivered pursuant to the Agreement contain all of the terms and conditions agreed upon by the Parties relating to the subject matter of the Agreement and supersede all prior agreements, negotiations, correspondence, undertakings, and communications of the Parties, whether oral or written, respecting that subject matter.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 
 
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IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first written above.

 

Employer:

 

LOOP INDUSTRIES, INC.,  

a Nevada corporation

 

EXECUTIVE

 

 

 

 

 

 

 

By:

/s/ Daniel Solomita   By: 

/s/ Daniel Solomita

 

 

Daniel Solomita     Daniel Solomita  

 

President and Chief Executive Officer      

 

 

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EXHIBIT 10.5

 

MASTER SERVICES AGREEMENT

 

This Master Services Agreement (the “ Agreement ”) is dated September 1st, 2015 (the “ Effective Date ”).

 

BETWEEN:

LOOP HOLDINGS, INC. , a corporation duly incorporated under the laws of Nevada;

 

 

 

(Hereinafter called “ LOOP ”)

 

 

AND:

8198381 CANADA INC. , a corporation duly incorporated under the laws of Canada;

 

 

 

(Hereinafter called “ 8198381 ”).

 

WHEREAS LOOP is the owner of a polyethylene terephthalate (PET) depolymerization technology (the “ Technology ”);

 

WHEREAS 8198281 is in the business of, inter alia, providing research and development services, herein as Schedules A;

 

WHEREAS LOOP desires to engage 8198381 to provide certain services related to the Technology, including, without limitation, the design and engineering of production facilities, equipment testing, cost reduction assessment of chemical processes, product purity testing and research and development; and

 

WHEREAS the Parties wish to establish in this Master Services Agreement, the general terms and conditions governing the performance of services by 8198381.

 

NOW THEREFORE in consideration of the foregoing premises and the mutual covenants and agreements set forth herein, the Parties agree as follows:

 

1. DEFINITIONS

 

Affiliates means, with respect to either Party, any Person owned or controlled directly or indirectly by such Party or any Person controlled by, controlling, or under common control with such Party. The term “ control means with respect to any company or other Person, the ownership, beneficially or legally, of voting securities or interests in the capital of such company or other Person, to which are attached more than 50% of the votes that may be cast to elect the directors or directing managers of such company or other Person and such votes are sufficient to elect a majority of the directors or directing managers thereof, and “ Controlled has a corresponding meaning.

 

Applicable Laws means all applicable federal, state, provincial, territorial, municipal, foreign or other laws, statutes, rules, regulations, by-laws, orders, judgements, decisions, policies, directives, standards, guidelines, requirements, injunctions, awards or decrees which are applicable to 8198381 as the case may be, their respective property, activities or operations with respect to this agreement.

 

 
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LOOP Data means any data, information and materials that is submitted, directly or indirectly, to 8198381 by LOOP or obtained or learned by 8198381 in connection with the Services provided by 8198381 wider this Agreement and any SOW.

 

LOOP Representative means the LOOP employee designated in an applicable SOW to direct, coordinate and approve the Services and Deliverables.

 

Claim means any claim, demand, investigation, action, suit, proceeding or cause of action.

 

Confidential Information means any information or materials disclosed (either in writing or orally) by any Party (the “ Disclosing Party ”) to the other Party (the “ Recipient Party ”) whether before or after the date of this Agreement that is either designated as confidential or by its nature, should reasonably be considered as confidential, including without limitation, information relating to any Party’s or any of its Affiliates’ processes, plans or intentions, product information, know-how, design rights, trade secrets, technologies, discoveries, inventions, engineering, manufacturing and product specifications, operating procedures, analytical methods, instrumentation, marketing analysis and, financial data and registers, pricing information, feasibility studies and any other technical or commercial data or information relating to their products, business, affairs or activities and, without limiting the generality of the foregoing, with respect to LOOP, includes the LOOP Data. “Confidential Information” also includes all information received from third parties that either Party is obligated to treat as confidential. “ Confidential Information does not include information which the Recipient Party is able to demonstrate (i) is or becomes generally available to the public other than as a result of a disclosure by the Recipient Party, (ii) was within the Recipient Party’s possession on a non-confidential basis prior to its being provided to the Recipient Party by or on behalf of the Disclosing Party, (iii) is or becomes available to the Recipient Party on a non-confidential basis from a source other than the Disclosing Party, which source, to the knowledge of the Recipient Party, is not prohibited from disclosing such information by a legal, contractual or fiduciary obligation, or (iv) is independently developed by the Recipient Party without the use of the Disclosing Party’s information.

 

Deliverables means all data, materials, work product and deliverables to be developed or delivered in connection with the Services hereunder as set forth in this Agreement or in an applicable SOW.

 

Developments means any technology (including patents, inventions, improvements on know-how based on Intellectual Property Rights and Technical Information) which was conceived, created, made, generated, developed, acquired, produced, commissioned or reduced to practice in the course of the Agreement, whether contributed by LOOP, 8198381 or both and whether related to the Technology or otherwise.

 

Effective Date has the meaning set out in the preamble.

 

Governmental Authority means any government, regulatory authority, governmental department, agency, commission, board, tribunal, dispute settlement panel or body, bureau, official, minister, Crown, Corporation, court or other law, rule or regulation-making entity having or purporting to have jurisdiction on behalf of any nation, or province or state or other geographic or political subdivision thereof.

 
 
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Intellectual Property Rights means, in any jurisdiction: (i) patents and patent rights, and the subject matter thereof; (ii) trademarks, trade names, service marks, brand names, certification marks, trade dress and other indications of origin, whether registered or not and the goodwill associated therewith; (iii) copyrights, whether registered or not, and the subject matter thereof, including research and clinical data, Research Records, Deliverables and any other results or data arising in or developed in the course of a SOW and all associated moral rights (including without limitation the rights of paternity, integrity and association); (iv) trade secrets and other confidential or non-public information including inventions, discoveries, formulae, compositions, inventor’s notes, innovations, improvements, technical development, know-how, manufacturing and production processes and techniques (including for scale-up), products specifications, research and development information, drawings, schematics, specifications, plans, proposals and technical data; (v) internet protocol addresses and domain names, whether or not used or currently in service; (vii) any similar intellectual or industrial property or proprietary rights including industrial designs; and (viii) registrations of, and applications to register any of the foregoing, and any renewal, extension, reissue, division, continuation, continuation in part, patent of addition, re-examination, derivation or modification thereof

 

Loss means any and all loss, liability, damage, cost, including reasonable attorney’s fees, expense, charge, fine, penalty, lien, encumbrance, hypothec or assessment, resulting from or arising out of any Claim, including the reasonable costs and expenses of any investigation, action, suit, proceeding, demand, assessment, judgment, settlement or compromise relating thereto and all interest, fines and penalties and reasonable legal fees and expenses incurred in connection therewith.

 

Parties means LOOP and 8198381, collectively, and “ Party means either LOOP or 8198381.

 

Person means any individual, sole proprietorship, partnership, unincorporated organization, syndicate, trust, corporation, company, an individual person in his capacity as trustee, executor, administrator or other legal representative, Governmental Authority, and any other entity howsoever designated or constituted.

 

Research Records means all records (whether verbal, written or electronic) relating to the Services or the SOWs.

 

Services means the tasks and services to be performed by 8198381, as described in this Agreement and applicable Statements of Work.

 

Specifications means the specifications and requirements for the Services and Deliverables as described in this Agreement and applicable Statements of Work.

 

Statement of Work or “ SOW means the mutually agreed plan and delineation of activities, events and Services to be performed, and Deliverables to be provided, by 8198381 under this Agreement. Each SOW shall include a detailed schedule for performance of the Services, delivery of the Deliverables and the cost of such Services and Deliverables. Each executed SOW shall be attached hereto and incorporated herein as Schedules A, A-1, A-2 et seq. No SOW will be effective until signed by authorized representatives from both Parties.

 

Technical Information means all know-how and related technical knowledge including: all Confidential Information, non-public information; non-proprietary know-how and invention disclosures; any information of a scientific, technical or business nature regardless of its form; all documented research, developmental, demonstration or engineering work; all other blueprints, patterns, flow charts, equipment, parts lists, and all procedures, formulas, descriptions, related instructions, manuals, records and procedures; all ideas, innovations, discoveries, inventions, processes, machines, manufactures, compositions of matter, improvements, enhancements, modifications, technological developments, methods, techniques, systems, designs, artwork, drawings, plans, specifications, mark works, software, documentation, data and information (whether written or electronic).

 
 
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2. ENGAGEMENT

 

2.1. 8198381 shall perform the Services according to the terms and conditions set forth in this Agreement and the applicable SOW.

 

2.2. Upon written request by LOOP, 8198381 shall submit to LOOP written progress reports describing the status of 8198381’s performance of the Services. LOOP may request that 8198381 include, without limitation, the following items in such reports: (i) Services performed; (ii) total dollars charged; (iii) milestones or deadlines met and/or missed; and (iv) if applicable, 8198381’s plan to remedy delays and previously missed milestones or deadlines. The Parties shall work in good faith to remedy any delay and/or missed milestones or deadlines.

 

2.3. 8198381 may not subcontract any Services without the prior written consent of LOOP. If LOOP authorizes 8198381 to subcontract the Services, 8198381 shall remain responsible and liable for a subcontractor’s compliance with this Agreement and performance hereunder. LOOP may require 8198381 to remove/replace any subcontractors whose performance is deemed unacceptable to LOOP, acting in its sole discretion. Unless otherwise approved, LOOP shall not pay more for subcontracted Services than 8198381 pays for 8198381’s Services hereunder (i.e., time and materials rates for subcontractors shall be the same or less than time and materials rates for 8198381). In the event that LOOP allows 8198381 to subcontract any of the Services, it shall ensure that such authorized subcontractor executes an agreement with 8198381 providing for inter alia:

 

2.3.1. the assignment of all of the right, title and interest in and to the Developments and the Deliverables to LOOP;

 

2.3.2. the assignment of, and waivers with respect to moral rights and rights of inventorship on such Developments and Deliverables from any such subcontractor or its employees to LOOP;

 

2.3.3. the delivery to LOOP of Research Records upon request of LOOP; and

 

2.3.4. the maintenance in confidence and non-use of proprietary information and other Confidential Information in connection with the Services, Developments or Deliverables, in a manner that is no less restrictive than those related restrictions contained in this Agreement and in any related Statement of Work.

 

2.4. LOOP acknowledges and agrees that 8198381 may perform any tasks and services to any third party. Notwithstanding the foregoing, 8198381 shall not perform any tasks or services related to the depolymerization of plastic to any third party without the prior written consent of LOOP.

 
 
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3. COMPENSATION

 

3.1. Subject to the satisfactory review by LOOP of the Deliverables, Developments and Services performed hereunder, LOOP shall compensate 8198381 on a cost-plus basis, as set forth in the applicable SOW. 8198381 shall not proceed with or be reimbursed for any Services that (i) have not been authorized in advance by a LOOP Representative in connection with an applicable SOW or (ii) exceed any budget or expenditure limit set forth in an applicable SOW.

 

3.2. 8198381 shall invoice LOOP on a monthly basis for work rendered during the prior month. 8198381 shall submit invoices to the address of the LOOP representative set forth in the applicable SOW. LOOP shall pay 8198381 within 30 days after receipt of the invoice in accordance with Section 3.1 above.

 

3.3. During the term of this Agreement, 8198381 shall maintain complete and accurate books and records of the fees and expenses, including original documentation supporting all expenses, charged to LOOP in connection with the Services and Deliverables. 8198381 shall retain such records for three years after termination of this Agreement and shall make such records, and any additional records to ensure 8198381’s compliance with pricing and fee requirements hereunder, available to LOOP or its third party auditor, during normal business hours upon reasonable advance written notice; provided that 8198381 shall not be required to make such records available for inspection more than once per year unless LOOP’s request is triggered by a third party, including but not limited to, a Governmental authority. If any audit under this Section 3.3 determines that 8198381 has overcharged LOOP, LOOP shall notify 8198381 of the amount of such overcharge and 8198381 shall promptly pay such amount to LOOP. If any such overcharge exceeds 5% of the total amount charged to LOOP by 8198381 for the Services and Deliverables subject to the audit, then 8198381 shall reimburse LOOP for the reasonable cost of such audit.

 

4. OWNERSHIP

 

4.1. The Parties hereby acknowledge and agree that LOOP will own all right, title and interest in and to the Technology, the Developments and the Deliverables and any Intellectual Property Rights that arise therefrom. 8198381 hereby assigns and undertakes to assign to LOOP all of its right, title and interest in and to the Developments and the Deliverables and any Intellectual Property Rights that arise therefrom. 8198381 shall execute all necessary documents and provide assistance during and subsequent to the Term to enable LOOP to perfect and maintain its right, title and interest in and to the Developments and the Deliverables and any Intellectual Property Rights that arise therefrom.

 

4.2. 8198381 has no right to or interest in the work or product resulting from the Services (including, but not limited to, those arising out of or resulting from the use of all or any portion of the LOOP Data or either Party’s existing Intellectual Property Rights), or any of the documents, reports or other materials created by 8198381 in connection with such Services, nor any right to or interest in any title, ownership or Intellectual Property Rights. 8198381 agrees that the Services, the Deliverables, and the Developments have been specially commissioned or ordered by LOOP and, to the extent applicable, are “works made-for-hire” as that term is used in the copyright law of the United States and/or “works made in the course of employment” as defined by Section 13(3) of the Copyright Act (Canada), and that LOOP (or LOOP’s licensor, if so designated by LOOP) is, therefore, to be deemed the author, creator or inventor of and is the owner of all title, ownership and rights (including without limitation, all Intellectual Property Rights) in and to such Deliverables and Developments.

 
 
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4.3. In the event that such Services, the Deliverables, and the Developments, or any portion thereof, are for any reason deemed not to have been works made-for-hire and/or works made in the course of employment or are for whatever reason vested in 8198381, 8198381 hereby assigns, transfers and sells to LOOP (or LOOP’s licensor, if so designated by LOOP) any and all right, title, and interest 8198381 may have in and to such Deliverables and Developments, including, but not limited to all Intellectual Property Rights, all moral rights, all publishing rights, all rights to use, reproduce and otherwise exploit the Services, the Deliverables, and the Developments in any and all formats or media and all channels, whether now known of hereafter created. 8198381 shall execute such instruments as LOOP may from time to time deem necessary or desirable to evidence, establish, maintain, and protect LOOP’s (or LOOP’s licensor’s, if so designated by LOOP) ownership of such Services, the Deliverables, and the Developments and all right, title, and interest therein (including Intellectual Property Rights).

 

4.4. 8198381 shall, and shall ensure that its officers, employees, consultants, subcontractors or agents engaged by 8198381 for a SOW, promptly disclose to LOOP any and all Intellectual Property Rights created, developed, generated, produced or discovered in connection with the performance of the Services.

 

5. 8198381’S WARRANTIES

 

5.1. 8198381 warrants that:

 

5.1.1. in performing the Services, 8198381 shall comply with and procure compliance with all applicable Canadian federal, state, provincial, territorial and local laws, rules and regulations, including but not limited to those promulgated by any relevant Governmental Authority;

 

5.1.2. 8198381 shall perform the Services and provide the Deliverables in accordance with the Specifications;

 

5.1.3. 8198381 shall ensure that the Services will be of professional quality, consistent with the highest industry and professional standards as are current at the time of the performance of the Services and as are set out in the applicable SOW;

 

5.1.4. 8198381 shall comply and perform the Services described in the SOW in compliance with standards and the laws and regulations for the relevant jurisdictions, and 8198381 shall make all of its facilities, books and records available for audit for regulatory purposes and commercial purposes; and

 

5.1.5. 8198381 shall perform the Services described in a SOW in a timely manner, in accordance with the schedule and completion dates set out in that SOW, subject however, to delays in performance of the Services resulting from an act or omission of LOOP or caused by a cause beyond the reasonable control of 8198381. In the event of any of the foregoing, the dates set out in the SOW shall be extended for such reasonable time as may be mutually agreed upon between LOOP and 8198381 or, failing such agreement, by the period of time equal to the time lost as a result of the event causing the delay. 8198381 shall inform LOOP of such a delay as soon as 8198381 is aware that such a delay has occurred. 8198381 agrees to work diligently towards eliminating the conditions causing the delay. In the event the delay continues LOOP may terminate this Master Services Agreement or the applicable SOW in accordance with Section 8.

 

5.2. The warranties by 8198381 set forth above in Section 5 are in lieu of and annul all other representations or warranties, expressed, implied or statutory including, without limitation, any implied warranties of merchantability or fitness for a particular purpose or any non-infringement of any Intellectual Property Rights.

  

 
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6. INSPECTION

 

Upon reasonable advance notice, 8198381 will permit LOOP and/or its designated representative to visit the facilities where the Services are performed, to discuss the progress of the Services, to validate case reports against original data in their files, to make copies of the relevant records, to monitor the work performed hereunder, to determine whether the Services are being conducted in compliance with this Agreement.

 

7. REPRESENTATIONS AND WARRANTIES

 

7.1. Each Party represents and warrants to the other Party that:

 

7.1.1. it is duly incorporated and organized and validly existing under the laws of its jurisdiction;

 

7.1.2. it has full right, power and authority to enter into this Agreement and to perform its obligations under this Agreement;

 

7.1.3. it is duly qualified to carry on business in all jurisdictions in which it possesses assets or conducts and carries on business, and it complies and has complied with Applicable Laws and owns or has the right to use all governmental authorizations required to conduct its business as it is now being conducted or as contemplated by this Agreement and complies with said governmental authorizations;

 

7.1.4. it has taken all corporate action necessary to authorize its execution and delivery of, its performance of, its obligations under, and its consummation of the transactions contemplated by this Agreement and this Agreement has been executed and delivered by an officer of each Party in accordance with that authorization; and

 

7.1.5. this Agreement has been duly executed by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable in accordance with its terms subject only to applicable bankruptcy, reorganization, insolvency, moratorium, and similar Applicable Laws affecting creditors’ rights generally and to general principles of equity.

 
 
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8. CONFIDENTIAL INFORMATION

 

8.1. As a result of the Services to be performed pursuant to this Agreement, each Party will have access to Confidential Information of the other Party, and such Party’s Affiliates. The Recipient Party agrees not to disclose the Confidential Information for any purpose other than in the performance of this Agreement. The Recipient Party agrees to: (i) take all reasonable steps to ensure that Confidential Information is not disclosed or distributed by its employees or agents in breach of this Agreement; and (ii) use no less than the due care it uses to protect its own Confidential Information. The Recipient Party agrees to notify the Disclosing Party of any misuse or misappropriation of Confidential Information, immediately after the Recipient Party learns of any such misuse or misappropriation. The Recipient Party agrees to hold the Disclosing Party’s Confidential Information in confidence until that information becomes part of the public domain through no act of the Recipient Party.

 

8.2. This Section 8 will not be construed to prohibit disclosure of Confidential Information to the extent that such disclosure is required by law or valid order of a court or other Governmental Authority; provided, however, that the Recipient Party shall first have given written notice of the required disclosure to the Disclosing Party as soon as practicable, and to the extent legally permissible, in order to afford the Disclosing Party an opportunity to obtain a protective order. Additionally, the Recipient Party shall, at the Disclosing Party’s request and cost, make a reasonable effort to obtain such a protective order and/or assist the Disclosing Party in opposing or limiting any such disclosure.

 

8.3. All Confidential Information shall remain the property of the Disclosing Party. Neither this Agreement nor the disclosure of Confidential Information hereunder shall grant or be construed as granting any right, title, license or other interest in the Confidential Information. Upon the Disclosing Party’s request, the Recipient Party will promptly return or destroy (at the Disclosing Party’s option) all Confidential Information and will confirm in writing that the Recipient Party, its employees and agents have returned or destroyed all Confidential Information of the Disclosing Party.

 

8.4. All obligations of the Parties under this Section 8 shall survive the expiry or termination of this Agreement.

 

9. TERM

 

9.1. The initial term of this Agreement shall begin on the Effective Date and shall continue for [five (5 ) ] years from the Effective Date, unless earlier terminated pursuant to this Section 9. Thereafter, unless either Party provides the other Party with a written notice of termination within 90 days prior to the conclusion of the then-current term, this Agreement shall automatically be renewed and extended for successive one-year terms after expiration of the initial term or then current term, unless otherwise terminated pursuant to this Section 9.

 

9.2. Either Party has the right to terminate this Agreement if the other Party becomes insolvent, or if proceedings are commenced in connection with its winding up, dissolution or liquidation, or a proceeding is instituted by or against it under any present or future law relative to bankruptcy, insolvency or other relief for debtors or for or against the benefit of creditors, otherwise acknowledges its insolvency or is unable, for any reason, to meet its liabilities generally as they become due, or if any interim receiver, receiver, receiver and manager, trustee in bankruptcy, custodian, sequestrator, administrator, monitor, or liquidator or any other officer or person with similar powers shall be appointed in respect of such Party or over its property or assets, or if the holder of any lien or charge or any other creditor takes possession of such Party’s property, or any part thereof, or any interest of such party in such property, or any part thereof, or if a distress, execution, garnishment or any similar process be levied or enforced upon or against the same.

 
 
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9.3. Either Party has the right to terminate this Agreement if the other is in material breach of this Agreement and has not cured such material breach within ten (10) days of receiving prior written notice to cure same.

 

9.4. Notwithstanding Section 9.1, unless the Parties mutually agree otherwise, if the work term specified in a particular SOW extends beyond the term of this Agreement (in circumstances where this Agreement has or will have expired), the provisions of this Agreement will be deemed to be extended for the remainder of the term of that particular SOW, but only to the extent necessary for each Party to discharge its duties and obligations thereunder. Otherwise, this Agreement may only be renewed or extended by written agreement of the Parties as provided in Section 9.1.

 

9.5. Expiration or termination of this Agreement will not relieve either Party of any obligation accruing prior to such expiration or termination. The Parties’ respective rights and obligations under Sections 1 and 4 to 12 will survive the expiration or termination of this Agreement.

 

9.6. Upon termination of this Agreement by its terms or by either Party, 8198381 shall immediately deliver to LOOP (i) all Deliverables and Developments, (ii) all work-in-process relating to any of the Services, (iii) all Intellectual Property Rights in the possession of 8198381, regardless of the media on which it is contained, (iv) any and all data, documentation, copies, compilations and other materials referencing or based upon any of the foregoing (as all of the foregoing then exist), and (v) any and all tangible items or documents LOOP provided to 8198381 in connection with this Agreement.

 

10. LIMITATION OF LIABILITY

 

10.1. Neither Party will be liable to the other for penalties or liquidated damages or for special, indirect, consequential or incidental damages of any type or kind or for lost profits, loss of revenues or loss of data regardless of whether any such losses or damages are characterized as arising from breach of contract, breach of warranty, negligence, strict liability or otherwise, even if the other Party is advised of the possibility of such losses or damages, or if such losses or damages are foreseeable.

 

10.2. 8198381’s liability under this Agreement, regardless of the form of action, shall not exceed the compensation received for Services provided under a SOW under which such liability arises or, except in the case where 8198381’s liability arises as a result of gross negligence or wilful misconduct, out of its obligations under Section 8 or 9 of this Agreement.

 
 
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11. INDEMNIFICATION

 

11.1. Each Party shall indemnify and hold harmless the other Party and its Affiliates and their respective directors, officers, employees, consultants, subcontractors, mandataries and agents from all Losses arising out of or related to any Claim by a third Person related to its failure to perform or comply with any obligation or covenant under this Agreement or its breach of any representation or warranty stipulated in this Agreement.

 

11.2. Without limiting the generality of the foregoing, LOOP shall defend, indemnify, save and hold 8198381, its Affiliates and their respective directors, officers, employees, consultants, subcontractors, mandataries and agents (together, the “ 8198381 Indemnitees ”) harmless from and against any Losses arising out of or in connection with any Claim by a third Person (a) of infringement of its Intellectual Property Rights arising out of by 8198381 Indemnitees’ use of the LOOP’s Intellectual Property Rights in accordance with the terms and conditions of this Agreement and (b) with the manufacture, distribution, use, sales or other disposition by LOOP, or any distributor, customer, sublicensee or representative of LOOP, of any of LOOP’s products, services or processes and/or any other substances which are produced, purified or tested by 8198381 except to the extent that such Claims are attributable to the failure of 8198381 to fulfil its obligations hereunder, including without limitation, the failure by 8198381 to adhere to the terms of a SOW or gross negligence or wilful misconduct on the part of 8198381, and will pay any Losses which, by final judgment, after exhaustion of all reasonable appeals, may be assessed against them, provided that LOOP is given prompt written notice of the Claims and is given information, reasonable assistance and sole authority to defend the Claim.

 

12. NOTICES

 

12.1. All notices, requests, demands and other communications hereunder shall be in writing and will be deemed to have been duly given if (i) on the date of delivery, if delivered personally or by private courier to such Party; or (ii) on the third (3rd) business day following mailing, if mailed by registered or certified mail by U.S. or Canadian postal services (except in the course of a disruption of postal services); or (iii) on the date of delivery, if sent by email, confirmed by valid email “read” notification at the following addresses:

 

12.1.1. If to LOOP:

 

LOOP Holdings, Inc.

c/o l

l

l

  

 

Attention:

l

 

Telecopier:

l

 

Email:

l

 

 
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12.1.2. If to 8198381:

 

8198381 Canada Inc.

c/o l

l

l

   

 

Attention:

l

 

Telecopier:

l

 

Email:

l

  

Such addresses may be changed by notice given by one Party to the other pursuant to this Section 11 or by other form of notice agreed to by the Parties.

 

13. GENERAL PROVISIONS

 

13.1. Independent Contractor

 

The Parties acknowledge and agree that 8198381 is an independent contractor of LOOP. This Agreement by itself shall not create the relationship of employer and employee, a partnership, joint venture or other relationship between LOOP and 8198381. 8198381 shall have no authority to bind, obligate or commit LOOP by any promise or representation without the prior written approval of LOOP. LOOP shall not be liable for taxes, unemployment insurance, employer’s liability insurance, worker’s compensation insurance, withholding tax, or other taxes or withholding for or on behalf of 8198381 or any other Person consulted or employed by 8198381 in performing the Services. All such costs shall be 8198381’s responsibility

 

13.2. No Publicity

 

Neither Party shall use the other Party’s name or mark in any advertising, written sales promotion, press releases and/or other publicity matters relating to this Agreement without the other Party’s written consent.

 

13.3. No Third Party Beneficiaries

 

This Agreement is not intended to benefit any third parties and shall not be construed as a third party beneficiary contract.

 

13.4. Governing Law

 

This Agreement will be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws applicable therein without giving effect to the principles of conflict of laws.

 

13.5. Attorney’s Fees

 

If either Party incurs legal fees in connection with the enforcement of the terms of this Agreement or to recover damages or injunctive relief for breach of this Agreement,