Intellectual Property
 9 Months Ended
Nov. 30, 2015
Notes to Financial Statements  
Note 5. Intellectual Property

On October 27, 2014, the Company ("Assignee") entered into an Intellectual Property Assignment Agreement (the " Intellectual Property Assignment Agreement") with Hatem Essaddam ("Assignor"), whereas (a) The Assignor has developed a certain technique and method allowing for the depolymerization of polyethylene terephthalate at ambient temperature and atmospheric pressure ("Technique"); (b) The Assignee wishes to develop a Polyethylene terephthalate depolymerization processing plant; and (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. The key terms and conditions of the Intellectual Property Assignment Agreement are as follows:

 

Currency

 

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

 

Intellectual property acquisition obligations (including but not limited to a payment for $212,880) under the Agreement, however, have been paid in United States Dollars.

 

Assignment

 

On the terms and subject to the conditions set forth in this Assignment 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.

 

Purchase Price and Milestone Payments

 

The purchase price payable by the Assignee to the Assignor for the Purchased Assets shall be ONE MILLION THREE HUNDRED THOUSAND DOLLARS (CAD1,300,000) (the "Purchase Price"), exclusive of all Taxes, payable as follows:

 

  (a) Within five (5) days following the receipt, 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 (CAD250,000) with the escrow agent, in trust, to be held in accordance with the Escrow Agreement (the "Deposit");
     
  (b) Subject to the conditions set out in the Assignment Agreement having been complied with and subject to the terms of the Escrow Agreement, on the Closing Date, the Assignee shall give irrevocable instructions to the escrow agent to proceed to the transfer of the Deposit to Me Charles Derome, in trust for the benefit of the Assignor, and the Company shall remit an additional amount of TWO HUNDRED FIFTY THOUSAND DOLLARS (CAD250,000) to Me Charles Derome, in trust for the benefit of the Assignor, by wire transfer;
     
  (c) Subject to the Closing, TWO HUNDRED THOUSAND DOLLARS (CAD200,000) will be paid by wire transfer to the Assignor within sixty (60) days of each of the following milestones 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.

 

Transition Period Payment

 

In addition to the payment of the Purchase Price, during the Transition Period (a period of sixty (60) days following the reception of the Technique Sheet by the Assignee), the Assignee shall make a consulting payment for services in the amount of up to SIXTEEN THOUSAND DOLLARS (CAD16,000) to the Assignor payable as follows:

 

  (a) EIGHT THOUSAND DOLLARS (CAD8,000) payable concurrently with the Deposit by check made payable to the Assignor; and
     
  (b) subject to the conditions set out in the Assignment Agreement having been complied with, EIGHT THOUSAND DOLLARS (CAD8,000) payable on the Closing Date by check made payable to the Assignor.

 

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 (CAD25,700,000):

 

  (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.

 

Covenants

 

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.

 

Non-compete (The 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 the terms and conditions set out in the Transition Period Payment clause.

 

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.

 

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.

 

Default

 

If any party herein breaches the undertakings set forth in Sections 5.1.9 Non-compete (the Assignor), 5.1.10 Confidentiality or 5.1.11 Confidentiality and non-compete (Assignee and Intervenor) 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 $1,000 per day as liquidated damages, without prejudice to any other recourse including, without limitation, injunctive relief.

 

Conditions

 

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 Confidentiality or 5.1.11 Confidentiality and non-compete (Assignee and Intervenor) and 5.1.12 Default.

 

Closing

 

Closing of the transactions under the Intellectual Property Assignment Agreement occurred on April 1, 2015, when Mr. Essaddam and 93197218 Quebec Inc., an entity controlled by Mr. Essaddam, executed an Assignment and Moral Rights Waiver to Loop Holdings, assigning the depolymerization technology underlying the business of Loop Holdings to Loop Holdings. Loop Holdings has paid all consideration (except for possible future royalty payments) and met all closing conditions under the Intellectual Property Assignment Agreement. As of April 1, 2015, Loop Holdings has full and unconditional title to, and there are no restrictions to the use of, the depolymerization technology and any other intellectual property the subject of Intellectual Property Assignment Agreement.

 

Accounting Treatment of Considerations Relating to Intellectual Property Assignment Agreement

 

The Company recorded CAD500,000 (approximately $445,050 using the midpoint spot rate of 1CAD=$0.8901) as the purchase price of the intellectual property on October 27, 2014, which is being amortized over the estimated useful life of 15 years from the date of the assignment.

 

The Company did not make any Milestone payment as none of the Milestones have been met as of November 30, 2015.

 

The Company recorded a consulting fee of CAD16,000 during the transition period.

 

The Company did not make any royalty payments as the Company is still in the process of commercializing the technologies with no sales or licensing revenue of the Intellectual Property as of November 30, 2015.

 

Impairment Testing and Amortization Expense

 

(i) Impairment Testing

 

The Company acquired the intangible assets in October 2014 and is in the process of developing acquired intellectual property for commercial operations and the management of the Company determined that there was no impairment of such assets at February 28, 2015.

 

No events or changes in circumstances have occurred through November 30, 2015 to indicate that its carrying amount may not be recoverable.

 

(ii) Amortization Expense

 

Amortization expense was $22,257 and $2,473 for the reporting period ended November 30, 2015 and for the period from October 23, 2014 (inception) through November 30, 2014, respectively.