14:30:09 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Frankly Inc
Symbol TLK
Shares Issued 22,095,681
Close 2015-07-28 C$ 2.59
Market Cap C$ 57,227,814
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Frankly to acquire WorldNow for $45-million (U.S.)

2015-07-29 11:44 ET - News Release

Mr. Steve Chung reports

FRANKLY INC. AGREES TO ACQUIRE WORLDNOW, A TOP 50 WEB PROPERTY IN THE U.S. AND LEADING MOBILE PLATFORM FOR NEWS

Frankly Inc. has signed an agreement, dated as of July 28, 2015, to purchase the outstanding units of Gannaway Web Holdings LLC, doing business as WorldNow, for total consideration of $45-million (U.S.). The acquisition of Worldnow will enable Frankly to provide mobile messaging and news content on one platform, increasing its user engagement, traffic and monetization. In addition, Frankly will be acquiring Worldnow's content platform with more than 100 million monthly active users and 450 customers.

Worldnow powers one of the largest networks of local news content on mobile and the Web in the United States, according to comScore Inc. It enables local broadcasters and TV stations to connect to their viewers digitally by helping them create websites, apps and other digital properties used to distribute and manage on-line content while providing a leading-edge advertising platform as part of its core offering. Worldnow generates revenue through long-term licensing agreements on its news platform, as well as through digital advertising. Worldnow's revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) has grown steadily in the past five years, reporting $26-million (U.S.) in revenue and $6.5-million (U.S.) in EBITDA in 2014.

"Frankly's acquisition of Worldnow enables us to combine two of the most powerful and proven engagement categories in mobile today," said Steve Chung, founder and chief executive officer of Frankly. "We will become a leading provider of mobile messaging and news content on one integrated platform, creating unique long-term growth and cross-selling opportunities. This transaction provides immediate scale for our business, adding a sizable user and customer base, an industry-leading advertising platform and a source of stable revenue and EBITDA."

"We are excited to begin the integration of our combined technologies," said Lou Schwartz, chief strategy officer at Worldnow. "The Frankly and Worldnow joint offering will enable us to better serve our combined customers in media, sports, entertainment, retail, local news and mobile app development. With a combined chat and content platform, our customers have an industry-leading engagement and monetization solution that enables them to interact directly with their consumers in real time, allowing the content and brand owners to become more relevant and increase mind share on their own digital properties."

Mr. Chung continued: "We are excited to welcome the highly talented Worldnow employees to the Frankly family. We look forward to becoming the pre-eminent platform for content and messaging."

Founded in 1998 by Gary Gannaway, Worldnow has more than 90 employees working in its New York office. Worldnow is one of the top 20 most visited news/information network of sites in the United States (source: comScore Inc.).

The transaction

Pursuant to the purchase agreement, Frankly is to acquire 100 per cent of the outstanding membership units of Worldnow. Under the terms of the purchase agreement, on the closing date, Frankly will pay $10-million (U.S.) in cash and $20-million (U.S.) in Class A restricted voting shares of Frankly to the vendors of the interests in Worldnow, being Gannaway Entertainment Inc. (GEI), Raycom Media Inc., Liberty TV Group LLC and two other individual minority shareholders (with such individual shareholders to receive cash only and GEI, Raycom and Liberty to receive cash consideration and the stock consideration) and will pay an additional $15-million (U.S.) in cash on the date that is one year from the closing date to GEI and Raycom. The number of Class A shares comprising the stock consideration is 9,772,204 Class A shares, determined with reference to the volume-weighted average price of the common shares of Frankly on the TSX Venture Exchange for the five days prior to the date hereof (being $2.6471). The second-tranche cash consideration will be evidenced by promissory notes issued at closing, bearing simple interest at a rate of 5 per cent per year.

All of the securities composing the stock consideration will also be subject to a lock-up agreement. The lock-up period with respect to securities representing 50 per cent of the value of the stock consideration will expire upon the first anniversary of the closing date of the transaction; and the lock-up period with respect to the remainder of the stock consideration will expire upon the second anniversary of closing of the transaction. The lock-up periods are subject to earlier expiry upon the occurrence of certain events that constitute a change of control of the company. Upon expiry of the lock-up periods, the Class A shares will be converted into common shares.

Upon the closing of the transaction, it is expected that Raycom will own 6,751,132 Class A shares, convertible into the same number of common shares, or 21.2 per cent of the outstanding common shares. Paul H. McTear, chief executive officer and a director of Raycom, is the person with authority to make decisions with respect to these common shares on behalf of Raycom.

Subject to TSX-V approval, in connection with, and upon the closing of, the transaction, Frankly shall appoint Joseph G. Fiveash, vice-president, digital media, strategy and business development, of Raycom, as a member of Frankly's board of directors and Mr. Schwartz as president of the media division of Frankly. Upon the appointment of Mr. Fiveash as a member of Frankly's board of directors, Jung Woo Sung will step down as a director of Frankly.

The company further expects that, upon completion of the transaction and subject to TSX-V approval, certain officers of Worldnow will assume roles with Frankly or continue as officers of the Worldnow business unit, and, as such, will be considered insiders of Frankly for purposes of securities laws and the policies of the TSX-V. It is expected that Inna Vartelsky will assume the position of global controller, John Wilk will assume the position of general counsel, and Craig Smith and Melissa Hatter will each assume positions equivalent to senior vice-presidents of the Worldnow business unit.

Beacon Securities Ltd. is acting as financial adviser to Frankly, and Fasken Martineau DuMoulin LLP and Reed Smith LLP are acting as Frankly's legal counsel.

The closing of the transaction remains subject to TSX-V approval and, to the extent required by the TSX-V, approval of Frankly's shareholders.

 
   SUMMARY FINANCIAL INFORMATION OF WORLDNOW

Income statement data (US$)    Year ended 2014  
  
Total revenues                     $26,455,220       
Total expenses                     $24,617,482       
EBITDA                             $ 6,492,995       
Net income                         $ 1,837,738       
                                                  
Balance sheet data (US$)   As at Dec. 31, 2014

Total assets                       $17,726,209       
Total liabilities                  $14,583,938

Incentive payment

Subject to TSX-V approval, pursuant to a management services agreement dated April 1, 2015, between Worldnow and Schwartz & Associates PC, Schwartz & Associates is due the amount of $1,125,000 (U.S.) in connection with, and upon the closing of, the transaction, $400,000 (U.S.) of which the company shall satisfy by granting Class A shares to Schwartz & Associates. The Class A shares will be issued at a price of $2.6471 per Class A share, being the volume-weighted average price of the common shares on the TSX-V for the five days prior to the date hereof.

Mr. Schwartz is the principal of Schwartz & Associates and is the chief strategy officer of Worldnow.

Credit facility

In conjunction with the transaction and subject to TSX-V approval, Frankly has obtained a commitment letter from JJR Private Capital LP for a credit facility of up to $10-million (U.S.). In consideration for and upon JJR entering into the credit facility, Frankly has agreed to pay to JJR a commitment fee in the amount of $100,000 (U.S.) and to issue to JJR 50,000 common shares, subject to TSX-V approval. Advances under the credit facility will be in multiples of $1-million (U.S.) and will bear interest at 10 per cent per year. In connection with each advance, Frankly is required to: (i) pay a drawdown fee to JJR equal to 1 per cent of the amount of the advance, and (ii) issue to JJR warrants to purchase common shares in an amount equal to 10 per cent of the amount of the advance at an exercise price equal to the weighted average of the trading prices of the common shares for the 10 trading days ending on the last trading date preceding the date of the written drawdown request by Frankly, subject to TSX-V approval. The warrants shall be exercisable for three years from the date of issuance and shall provide for other customary provisions.

Ronald D. Schmeichel is a director of Frankly and principal of JJR. Accordingly, the entering into of the credit facility would constitute a related party transaction pursuant to Multilateral Instrument 61-101, Protection of Minority Securityholders in Special Transactions. Pursuant to MI 61-101, the credit facility is not subject to the formal valuation requirements and the transaction is also exempt from the minority approval requirement, as neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the credit facility, insofar as it involves interested parties, exceeds 25 per cent of Frankly's market capitalization.

We seek Safe Harbor.

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