Transaction accelerates Frankly's top-line growth and adds over 100 million monthly active users

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SAN FRANCISCO, CA, July 29, 2015 /CNW/ - Frankly Inc. (the "Company" or "Frankly") (TSX-V: TLK) a next-generation chat technology platform that brings dynamic conversation and direct consumer engagement to mobile app experiences, today announced that it has signed an agreement dated as of July 28, 2015  ("Purchase Agreement") to purchase the outstanding units of Gannaway Web Holdings, LLC, d/b/a/ WorldNow ("Worldnow") for total consideration of US$45 million.  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 (MAU) and 450 customers.

Worldnow powers one of the largest networks of local news content on mobile and 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 online 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 has grown steadily in the past five years, reporting US$26 million in revenue and US$6.5 million 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 CEO 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 mindshare 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 preeminent 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% of the outstanding membership units of Worldnow.  Under the terms of the Purchase Agreement, on the closing date, Frankly will pay US$10 million in cash and US$20 million in Class A restricted voting shares of Frankly (the "Class A Shares") (the "Stock Consideration") to the vendors of the interests in Worldnow, being Gannaway Entertainment, Inc. ("GEI"), Raycom Media Inc. ("Raycom"), Liberty TV Group, LLC ("Liberty") 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 US$15 million (the "Second Tranche") 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 (the "Common Shares") on the TSX Venture Exchange ("TSX-V") for the five days prior to the date hereof (being C$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 annum.

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% 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% of the outstanding Common Shares. Mr. Paul H. McTear, Jr., 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, III, Vice President, Digital Media, Strategy and Business Development of Raycom, as a member of Frankly's board of directors and Lou 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 Ms. Inna Vartelsky will assume the position of global controller, Mr. John Wilk will assume the position of general counsel, and Mr. Craig Smith and Ms. Melissa Hatter will each assume positions equivalent to senior vice presidents of the Worldnow business unit. 

Beacon Securities Limited is acting as financial advisor 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

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") (the "Management Services Agreement"), Schwartz & Associates is due the amount of US$1,125,000 in connection with, and upon the closing of, the transaction (the "Incentive Fee"), US$400,000 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 C$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.

Lou 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 Limited Partnership ("JJR") for a credit facility of up to US$10 million (the "Credit Facility").  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 US$100,000 and to issue to JJR 50,000 Common Shares, subject to TSX-V approval.  Advances under the Credit Facility will be in multiples of US$1 million (each, an "Advance") and will bear interest at ten percent (10%) per annum.  In connection with each Advance, Frankly is required to (i) pay a drawdown fee to JJR equal to one percent (1%) of the amount of the Advance, and (ii) issue to JJR warrants to purchase Common Shares in an amount equal to ten percent (10%) 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 ten (10) trading days ending on the last trading date preceding the date of the written drawdown request by Frankly (the "Warrants"), subject to TSX-V approval. The Warrants shall be exercisable for three (3) 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 ("MI 61-101").  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% of Frankly's market capitalization.

About Frankly

The Company is a next generation "chat-as-a-service" technology platform that brings dynamic conversation and direct consumer engagement to mobile app experiences.  The Company aims to unlock the power of messaging for every platform by seamlessly enabling access to conversations that matter most to individuals and communities.  Through the simple integration of our Chat SDK, the Company's technology can be inserted into a website or mobile application to provide a customizable version of the Company's messaging technology.  The Company is currently working with many partners across several industries.  The Company also offers Frankly Chat, a free, mobile messaging application for iOS and Android devices.  Frankly Chat has over 2 million downloads, and is focused on user privacy by offering ephemeral messages with unsend capabilities.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Caution Regarding Forward Looking Information

This release includes forward-looking statements, including: the expected completion date of the proposed transaction; the integration of Worldnow into Frankly's business; the business plan and strategies of Worldnow and Frankly; the combined company's financial position and growth prospects; management of the combined company; the anticipated tax treatment of the proposed combination for Worldnow's shareholders; and Frankly's and Worldnow's anticipated future results.  Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions. Forward-looking statements reflect current estimates, beliefs and assumptions, which are based on Frankly's and Worldnow's perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. Frankly's and Worldnow's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. Frankly and Worldnow can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Numerous risks and uncertainties could cause the combined company's actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to: failure to realize anticipated results; failure to realize benefits from the combined company's IT systems, including the combined company's IT systems implementation, or unanticipated results from these initiatives; the inability of the combined company's IT infrastructure to support the requirements of the combined company's business; heightened competition; and changes in economic conditions; damage to the reputation of brands promoted by the combined company; changes in the combined company's income, commodity, other tax and regulatory liabilities including changes in tax laws.

There can be no assurance that the proposed combination will occur or that the anticipated strategic benefits and operational, competitive and cost synergies will be realized. The proposed combination is subject approval by the TSX Venture Exchange and, potentially, shareholders of Frankly, and the fulfillment of certain conditions, and there can be no assurance that any such approvals will be obtained and/or any such conditions will be met.

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect Frankly's and Worldnow's expectations only as of the date of this News Release. Frankly and Worldnow disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

To learn more about Frankly, please visit www.frankly.com.

SOURCE Frankly Inc.