Attached files
Exhibit 10.1
0838373 B.C. LTD.
URBAN CULTIVATOR INC.
BC NORTHERN LIGHTS ENTERPRISES LTD.
W3 METALS INC.
Unit 311 - 13060 80th Avenue
Surrey, British Columbia, Canada V3W 3B2
October 3, 2014
Mr. Frank Terzo
Urban Hydroponics, Inc.
Suite 433, 4045 Sheridan Avenue
Miami Beach, Florida 33140
United States
Gentlemen:
We are pleased to submit this letter of intent ("Letter of Intent") whereby
0838373 B.C. Ltd. ("Numbered Company"), Urban Cultivator Inc. ("UC"), BC
Northern Lights Enterprises Ltd. ("BCNL") and W3 Metal Inc. ("W3", and together
with Numbered Company, UC and BCNL, the "Companies") intend to complete a
private placement offering, merger and related transactions with Urban
Hydroponics, Inc., formerly known as Placer Del Mar Ltd., and/or its affiliates
("UH"), a U.S. publicly traded company. You and we agree that this Letter of
Intent is binding, subject to Item 22 hereof, and supersedes and replaces any
and all prior oral and/or written agreements.
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1. STRUCTURE The Companies are privately held corporations organized
under the laws of British Columbia, Canada. UH is a
publicly traded corporation currently quoted on the OTC
Markets Group Inc. QB Tier under the symbol "URHY" and
filing reports with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), shares of whose
common stock were registered on a registration
statement under the Securities Act of 1933, as amended
(the "Securities Act") and are registered under the
Exchange Act. UH is organized under the laws of the
State of Nevada, United States.
The Companies will enter into a reverse triangular
merger with UH and a newly formed Canadian acquisition
subsidiary ("Subco") of UH, which merger (the "Merger")
shall be conducted in a tax-efficient manner under the
tax laws of Canada and the United States, and pursuant
to which all of the outstanding shares of capital stock
of the Companies will be cancelled in exchange for
shares Subco (the "Exchangeable Shares"), which
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Exchangeable Shares must be exchanged by the holders
thereof into UH common stock ("Common Stock") on or
before October 30, 2019; and simultaneously UH will
conduct a private placement offering (the "PPO") of its
securities on the terms and conditions described below.
The Companies reserve the right to complete a business
combination among themselves and affiliated companies
prior to completing the Merger.
The anticipated closing date for the Merger and the PPO
(the "Closing Date") will be on or before October 31,
2014, with a possible extension at the option of UH to
the earlier of November 30, 2014 and the date of
completion and execution of the definitive agreements,
and subject to completion and delivery of audited and
interim unaudited financial statements of the Companies
pro forma the Merger, compliant with applicable SEC
regulations for inclusion under Item 2.01(f) and/or
5.01(a)(8) of SEC Form 8-K (the "Financial
Statements").
The transactions described in this Letter of Intent
will hereinafter be referred to as the "Transaction" or
"Transactions." All references in this Letter of Intent
to "$" or "dollars" are to United States dollars,
unless the context specifically provides otherwise.
2. MERGER AND
SPLIT-OFF The definitive merger agreement among UH and the
Companies and the acquisition subsidiary ("Merger
Agreement") will contain customary representations and
warranties for a transaction of this type, as mutually
agreed between the Companies, UH and Subco, including
the following representations, warranties and covenants
to be made by UH (and Subco, as applicable) on the date
of the Merger Agreement and on the Closing Date:
(a) UH is a State of Nevada corporation in good
standing whose shares are presently eligible for
quotation on the OTC Markets (or another
over-the-counter market to be agreed on) and not
subject to any notice of suspension or delisting;
(b) UH has complied with all applicable federal and state
securities laws and regulations, including being
current in all of its reporting obligations under
federal securities laws and regulations; and all prior
issuances of securities have been either registered
under the Securities Act, or are exempt from
registration; and UH is not in violation or breach of,
conflict with, or default under (with or without the
passage of time or the giving of notice or both) any
provisions of (a) UH incorporation documents or (b) any
mortgage, indenture, lease, license or any other
agreement or instrument;
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(c) no order suspending the effectiveness of any
registration statement of UH under the Securities Act
or the Exchange Act has been issued by the SEC and, to
UH's knowledge, no proceedings for that purpose have
been initiated or threatened by the SEC;
(d) UH is not and has not, and the past and present
officers, directors and affiliates of UH are not and
have not, been the subject of, nor does any officer or
director of UH have any reason to believe that UH or
any of its officers, directors or affiliates will be
the subject of, any civil or criminal proceeding or
investigation by any federal or state agency alleging a
violation of securities laws;
(e) UH is not and has not been the subject of any voluntary
or involuntary bankruptcy proceeding, nor is it or has
it been a party to any material litigation or, within
the past two years, the subject of any threat of
material litigation. Litigation shall be deemed
"material" if the amount at issue exceeds the lesser of
$10,000 per matter or $25,000 in the aggregate;
(f) UH has not, and the past and present officers,
directors and affiliates of UH have not, been the
subject of, nor does any officer or director of UH have
any reason to believe that UH or any of its officers,
directors or affiliates will be the subject of, any
civil, criminal or administrative investigation or
proceeding brought by any federal or state agency;
(g) UH does not, on the Closing Date, have any liabilities,
contingent or otherwise, including but not limited to
notes payable and accounts payable, except as set forth
in the Merger Agreement (which shall not exceed $25,000
in the aggregate, exclusive of professional fees and
expenses related to any of the transactions
contemplated by this Letter of Intent (the
"Transactions") and the Brokers' Fees (as defined
below)); and
(h) the issued and outstanding share capital of UH,
immediately prior to the closing date, has been duly
authorized and is validly issued, are fully paid,
non-assessable, and has been issued in accordance with
all applicable laws, including, but not limited to, the
Securities Act.
The Merger Agreement will contain customary
indemnification provisions to secure breaches of
representations and warranties reasonably satisfactory
to the parties and such other terms and provisions as
shall be mutually agreed upon between the Companies and
UH consistent with the provisions in this Letter of
Intent.
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Contemporaneous with the Merger, UH will transfer all
of its pre-merger operating assets and liabilities, if
any, to a newly formed wholly owned subsidiary
("Split-Off Subsidiary"). Thereafter, contemporaneously
with the closing of the Merger, UH shall transfer all
of the outstanding shares of capital stock of Split-Off
Subsidiary to UH's pre-Merger insiders, in exchange for
the surrender and cancellation of 22,000,000 shares of
UH Common Stock held by such persons (the "Split-Off").
Closing of the Merger and of at least the Minimum PPO
(as defined below) will each be a condition precedent
to the other and will occur simultaneously.
3. UH BRIDGE
FINANCING The Companies and Valor Invest Ltd. ("Valor") entered
into a term sheet dated May 5, 2014 in respect of
bridge financing for the Transaction. Subsequently UC,
BCNL and W3 (collectively, the "Borrowers") and UH
entered into a bridge loan agreement dated May 20,
2014, as may be amended from time to time (the "Loan
Agreement") whereby UH agreed to provide the Borrowers
bridge financing (the "Bridge Financing") in exchange
for secured promissory notes of the Borrowers (the
"Borrowers Notes") by way of the offer and sale by UH
to certain accredited or non-U.S. investors of its
senior secured convertible notes (the "Bridge Notes"),
to enable UH to advance sufficient funds to the
Borrowers to meet a portion of their specific working
capital requirements as set forth on Exhibit A hereto.
On the last business day of each month beginning in May
2014 and ending on the last day of October 2014, UH has
agreed to arrange additional lending to the Borrowers
of $120,000 per month (the "Additional Bridge
Financing"). As of September 30, 2014, a total of
$640,000 in Bridge Financing and Additional Bridge
Financing had been advanced under the Loan Agreement
against the delivery of two Borrowers Notes issued by
the Borrowers on May 20, 2014 and June 4, 2014 (in the
amount of $400,000 and $120,000, respectively), with a
third Borrowers Note to be dated July 16, 2014 (in the
amount of $120,000) and immediately delivered to UH.
Advances for August and September 2014 Additional
Bridge Financing (in the amount of $120,000 each) are
to be delivered in trust to Borrowers' counsel,
Boughton Law Corp. ("Boughton") to be released and
delivered to the Borrowers against delivery of fully
executed Borrower's Notes and an executed copy of this
Letter of Intent to UH. Delivery by the Borrowers of
the Borrowers' Notes to UH, for the July, August and
September 2014 advances (in the amount of $120,000
each) shall constitute conditions precedent to the
delivery of this Letter of Intent.
The Bridge Notes bear interest at the rate of ten
percent (10%) per annum and are payable eight (8)
months from the date of issuance, subject to earlier
conversion as described below. The interest on the
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Bridge Notes shall be accrued and shall be payable at
maturity; provided that if the Bridge Notes are
converted as described below, accrued interest shall be
converted into the PPO (as defined below).
The Borrowers Notes will be for a term equal to the
term of the Bridge Notes and will bear interest at the
same rate as the Bridge Notes; provided that upon the
Closing of the Merger, all amounts outstanding under
any issued Borrowers Notes shall be forgiven, and the
Borrowers Notes shall be deemed repaid in full. No
interest shall be payable on the Bridge Notes prior to
maturity.
The Borrowers (UC, BCNL and W3) are jointly and
severally liable for repayment of the Bridge Financing
and Additional Bridge Financing as evidenced by the
Borrowers Notes, and any action or event by one of the
Borrowers constituting an event of default will be
deemed a default by each of the other Borrowers. The
events of default included in the form of notes issued
by the Borrowers in connection with the Bridge
Financing and the Additional Bridge Financing are
substantially in the form set out on Exhibit D hereto.
Upon the occurrence of an event of default under the
Bridge Financing or any Additional Bridge Financing,
the interest rate will increase to a to be agreed upon
rate of default. The Bridge Financing and any
Additional Bridge Financing may not be prepaid in whole
or in part prior to maturity without the prior written
approval of UH.
BCNL, as borrower, has entered into a Royal Bank of
Canada Loan Agreement (Form 460) (the "RBC Loan
Agreement") dated September 21, 2011 with Royal Bank of
Canada (the "Lender") for demand credit facilities in
the aggregate amount of $325,000 (the "Credit
Facility"), pursuant to which BCNL granted a first
ranking security interest in all of its personal
property to the Lender, and each of W3 and UC
guaranteed the Credit Facility and also granted a first
ranking security interest in all of their personal
property to the Lender.
The Lender has registered security interests secured by
all of the personal property of each of the Borrowers
pursuant to the RBC Loan Agreement. Provided that the
current security registration in favour of the Lender
so permits, the Bridge Notes and the Additional Bridge
Notes will be secured by one or more perfected
subordinated second charge security interests on all of
the assets of each of the Borrowers and their
subsidiaries (if any). The security interests will be
released upon conversion or repayment of the Bridge
Notes in full.
Valor and/or any of its affiliates, agents or assigns,
will have the right to pay out any balance owing under
the RBC Loan Agreement directly to Lender, or otherwise
assume the priority interest of the Lender, at any time
by delivering 10 day's prior written notice of its
intention to do so to the Borrowers.
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Upon the closing of the Merger and the Minimum PPO (as
defined below), the outstanding principal amount of the
Bridge Notes (and any accrued and unpaid interest) will
be converted into Units (as defined below) on the same
terms as the PPO (as described below), except that upon
such conversion, holders of the Bridge Notes and the
Additional Bridge Notes shall receive along with each
Unit received one additional warrant (the "Bridge
Warrants") on the same terms as the PPO Warrants (as
defined below). The aggregate amount over and above
$500,000 so converted will be included in the gross
proceeds of the PPO (as defined below) for purposes of
meeting the target amount of the Minimum PPO (as
defined below).
4. PRIVATE
PLACEMENT
OFFERING UH will conduct a private placement offering pursuant
to Regulation D and/or Regulation S under the
Securities Act and any and all applicable state
securities laws (the "PPO") for minimum gross proceeds
of $2,500,000 (the "Minimum PPO") through the sale of
8,333,334 Units (as defined below) of UH's securities,
at an offering price of $0.30 per Unit (the "PPO
Offering Price"), each unit ("Unit") comprised of one
(1) share of UH's Common Stock and a warrant to
purchase one (1) share of Common Stock at an exercise
price of $0.35 per share for two (2) years after the
Closing Date (the "PPO Warrants"). UH may, with the
consent of the Companies, sell up to an additional
1,700,000 Units at the PPO Offering Price for proceeds
of $510,000 (the "Over-Allotment Option") in the event
the PPO is oversubscribed. The principal amount of the
Additional Bridge Notes along with accrued interest on
such notes shall be counted towards the Minimum PPO
amount.
Each share of Common Stock will be entitled to one vote
per share.
The closing of the Merger will occur upon (a) the
closing of at least the Minimum PPO, (b) the completion
and delivery by the Companies to UH of the Financial
Statements, and (c) execution of the definitive
documentation for the Merger and related transactions
in form and substance satisfactory to each party.
5. BROKER/DEALER A non-U.S. broker-dealer shall be engaged on an
exclusive basis as placement agent (the "Placement
Agent"), on a best efforts basis, for the offer and
sale of the PPO Units to non-U.S. persons, pursuant to
a placement agent agreement to be executed by the
parties, in a form satisfactory to UH and the Companies
(the "Placement Agent Agreement").
Each Placement Agent will be paid a total cash
commission of ten percent (10%) of funds raised from
investors in the PPO ("Brokers' Fees") and will receive
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warrants to purchase a number of shares of UH Common
Stock equal to ten percent (10%) of the number of
shares of UH Common Stock sold to investors in the PPO,
exercisable for a term of two (2) years after the
Closing Date at an exercise price of $0.30 per share
(the "Brokers' Warrants"). The Placement Agent will be
paid an additional cash commission of two and a half
percent (2.5%) of funds raised through the exercise of
Bridge Warrants and PPO Warrants issued to investors.
Payment of the Brokers'Fees and issuance of the
Brokers' Warrants shall also apply to the aggregate
amount of funds raised through the sale of the Bridge
Notes over and above $500,000. Valor, or one of its
assignees shall receive a fee of $50,000 (of which
Valor has received $20,000) for the placement of the
initial $500,000 in Bridge Notes.
Any sub-agent (which may include U.S.-registered
broker-dealers) of the Placement Agent that introduces
investors to the PPO shall be entitled to share in the
cash fees and warrants attributable to those investors.
6. CONSIDERATION;
CAPITALIZATION As of July 1, 2014, UH has an authorized capitalization
of 300,000,000 shares of Common Stock and 10,000,000
million shares of "blank check" preferred stock. The
issued and outstanding share capital of UH as of
October 3, 2014 is 34,400,000 shares of Common Stock
and no shares of preferred stock.
As a condition to, and concurrent with completion of
the Merger, UH shall complete the Split off and have no
more than 12,400,000 shares of Common Stock and no
shares of preferred stock issued and outstanding in the
hands of its preexisting securityholders as of the
Closing Date.
The outstanding capitalization of the Companies on the
date hereof is set forth on Exhibit B hereto. In
consideration for the Merger, the stockholders of the
Companies shall receive, in exchange for all of their
outstanding shares of capital stock of the Companies,
on a fully-diluted basis, an aggregate of 32,000,000
shares of UH Common Stock (the "Vend-In Stock"), such
shares to be restricted shares of UH Common Stock
subject to the Stock Registration Rights (as defined
below), to be issued pro rata (5,000,000 shares to the
shareholders of UC and 27,000,000 shares to the
shareholders of 0838373 B.C. Ltd. the sole shareholder
of BCNL and W3).
As an incentive to provide ongoing assistance with the
management of UH post-Merger, UH shall allot to Tarren
Wolfe or his designated assigns, an additional
10,000,000 restricted shares (the "Earn-Out Shares") of
UH Common Stock for allocation and release annually
over a period of 5 years starting with fiscal 2015 and
ending with fiscal 2019, with the first such release to
occur forthwith upon completion of the audited
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financial statements of UH for such fiscal year, on the
basis of 1 share of UH Common Stock to be issued for
each $5 of revenue earned in such fiscal year.
FOR ILLUSTRATIVE PURPOSES ONLY, ASSUMING THE COMPANIES
GENERATE COMBINED REVENUES OF $5 MILLION FOR THE FISCAL
YEAR ENDING OCTOBER 31, 2015, UH WOULD ALLOCATE AND
RELEASE TO TARREN WOLFE AND /OR HIS DESIGNATED ASSIGNS
1 MILLION OF THE EARN-OUT SHARES FOR YEAR 1.
UH shall complete the aforementioned calculations
annually forthwith upon completion of the audited
financial statements and shall deliver same to Tarren
Wolfe along with a request for confirmation of the
registration and delivery instructions for the Earn-Out
Shares prior to issuing and releasing any Earn-Out
Shares.
The investors in the PPO and in the Bridge Financing
inclusive of the initial $500,000 Bridge Financing will
own 10,000,000 restricted shares (subject to
registration rights as provided below) of UH Common
Stock if the Minimum PPO is sold (without giving effect
to any sale of the Over-Allotment Option or exercise of
PPO Warrants or Bridge Warrants).
The stockholders of UH prior to the Merger and PPO will
retain, after giving effect to the surrender and
cancellation of 22,000,000 restricted shares of UH
Common Stock in the Split-Off, 12,400,000 shares of UH
Common Stock.
Prior to the execution of the Definitive Agreement,
Valor shall nominate one or more third parties (the
"Optionee"), who will be granted an option (the
"Purchase Option") to purchase 10,000,000 shares of UH
Common Stock or Exchangeable Shares received in the
Merger, as the case may be (the "Option Shares") from
Tarren Wolfe or any of his associates or affiliates.
The Purchase Option shall be exercisable for a period
of nine months after the Closing Date at an exercise
price of US$0.40 per Option Share, to be exercised by
the Optionee as follows: (i) 2,500,000 of the Option
Shares within 30 days after the Closing Date (the
"First Option Exercise"); (ii) 2,500,000 of the Option
Shares within 3 months after the Closing Date (the
"Second Option Exercise"); (iii) 2,500,000 of the
Option Shares within 6 months after the Closing Date;
and (iv) 2,500,000 of the Options Shares within 9
months after the Closing Date.
The Vend-In Stock and Earn-Out Shares will not be
subject to the registration rights set out in Item 10
below unless any one of the First Option Exercise and
Second Option Exercise are not made to the Optionee, in
which case the Vend-In Stock and Earn-Out Shares will
become registerable in accordance with Item 10
forthwith upon default of any such option exercise (the
"Stock Registration Rights").
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Prior to the Closing Date, the Board of Directors of UH
(the "Board") shall have adopted an Equity Incentive
Plan (the "EIP") for the future issuance of up to
7,600,000 shares of UH Common Stock, at the discretion
of the Board, as incentive awards to officers, key
employees, consultants and directors. UH may not during
the first year following closing of the Merger grant
awards under the EIP in excess of 3,500,000 shares of
UH Common Stock.
Upon the closing of the Merger, UH shall issue to
Gottbetter & Partners, LLP ("G&P") 400,000 restricted
shares of its Common Stock as settlement in full of all
outstanding invoices owed to G&P by UH for past legal
services rendered to UH by G&P.
The actual and fully diluted capitalizations of UH upon
closing of the Merger (without giving effect to any
sale of the Over-Allotment Option) are set forth in the
capitalization tables attached hereto as Exhibit C.
7. FINANCIAL
STATEMENTS
OF THE
COMPANIES;
SIGNING DATE;
CASH CONTROLS On or prior to the Closing Date, the Companies shall
deliver the Financial Statements to UH. It is
contemplated that the Merger Agreement and other
documents and agreements concerning the Transactions
will be signed on or before the last day of the
Exclusivity Period (as defined below).
Notwithstanding anything to the contrary set out in
this Letter of Intent and except as otherwise set forth
below, all new material expenditures undertaken by UH
from the date hereof until the closing of the Merger,
excluding those fees and expenses relating to the
Transactions referenced in Section 13 below, must be
approved in writing by either Tarren Wolfe or Eric
Sloan. Subsequent to the closing of the Merger, the
only signatories to any UH bank account will be Tarren
Wolfe, Eric Sloan and a Chief Financial Officer to be
appointed after closing at the discretion of the Board
as set out in Item 8 below. Subsequent to the closing
of the Merger, all material expenditures greater than
$25,000 shall be approved by two UH signatories.
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8. BOARD OF
DIRECTORS;
OFFICERS;
EMPLOYMENT
AGREEMENTS On the Closing Date, the Board shall consist of five
(5) members, at least three (3) of whom shall be
independent. Two (2) of the independent directors shall
be nominated by Valor and the Companies upon mutual
agreement and one (1) of the independent directors
shall be nominated by Tarren Wolfe. The remaining two
(2) directors shall be Tarren Wolfe, who shall also be
nominated as Chairman, and Eric Sloan. After closing,
the Board shall choose a Chief Financial Officer and
head of sales and marketing reasonably acceptable to
all members of the Board.
On the Closing Date, all of the current officers and
directors of UH shall resign and, simultaneously
therewith, (a) the new Board shall be appointed as
described above; and (b) such officers of UH shall be
appointed as shall be determined by the Companies, who
shall include Tarren Wolfe as Chief Executive Officer
and Eric Sloan as President.
Any such other employees as the Companies shall
designate shall, upon the closing of the Merger, along
with the officers appointed as officers of UH, each
have employment agreements with UH satisfactory to the
Companies, UH and the respective employees.
9. FINDERS' FEES UH shall pay finders' and/or consultants' fees (the
"Finders Fees") in the form of no greater than
1,200,000 UH Common Stock to be issued to three parties
in connection with the PPO and Merger.
10. REGISTRATION No later than one year from the final Closing Date of
the PPO, UH shall file a registration statement (on
Form S-1, or similar form) with the SEC (the
"Registration Statement") covering (a) the shares of
Common Stock issued in the PPO, (b) the shares of
Common Stock issuable upon exercise of the PPO
Warrants, (c) the Option Shares, and (d) the shares of
Common Stock underlying the Brokers' Warrants and
Bridge Warrants (collectively, the "Registrable
Shares"). In addition, subject to either of the First
Option Exercise and the Second Option Exercise not be
being made as contemplated by Item 6, the Vend-In Stock
and the Earn-Out Shares shall also become "Registrable
Shares" immediately upon default of any such option
exercise and be subject to registration as contemplated
in this Item 10.
UH shall use its commercially reasonable efforts to
ensure that such Registration Statement is declared
effective within one hundred eighty (180) calendar days
of filing with the SEC. If UH is late in filing the
Registration Statement or if the Registration Statement
is not declared effective within one hundred eighty
(180) days of filing with the SEC, monetary penalties
payable by UH to the holders of Registrable Shares that
have not been so registered will begin to accrue and
cumulate at a rate equal to one-half of one percent
(0.50%) of the Offering Price per share for each full
month that (i) UH is late in filing the Registration
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Statement or (ii) the Registration Statement is late in
being declared effective by the SEC; provided, however,
that in no event shall the aggregate of any such
penalties exceed five percent (5%) of the Offering
Price per share. Notwithstanding the foregoing, no
penalties shall accrue with respect to any Registrable
Shares removed from the Registration Statement in
response to a comment from the staff of the SEC
limiting the number of shares of Common Stock which may
be included in the Registration Statement (a "Cutback
Comment") or after the shares may be resold under Rule
144 or another exemption from registration under the
Securities Act.
UH shall keep the Registration Statement "evergreen"
for two (2) years from the date it is declared
effective by the SEC or until Rule 144 of the
Securities Act is available to the holders of
Registrable Shares with respect to all of their
Registrable Shares, whichever is earlier.
In any follow-on "best efforts" private placement
offering of UH's securities that provides for
registration rights, the PPO investors who have not yet
sold their Registrable Shares will be entitled to
"piggyback" registration rights.
The holders of Registrable Shares (including any shares
of Common Stock removed from the Registration Statement
as a result of a Cutback Comment) shall have
"piggyback" registration rights for such Registrable
Shares with respect to any registration statement filed
by UH following the effectiveness of the aforementioned
Registration Statement that would permit the inclusion
of such underlying shares.
In addition, for a period of twelve (12) months
following the closing of the Transactions, UH shall not
register, nor shall it take any action to facilitate
registration, under the Securities Act, the shares of
the Common Stock of UH issued pursuant to the Merger to
the "Restricted Holders," as defined below, or the
Earn-Out Shares. The above restriction shall not
prohibit UH from (a) registering on Form S-8 Common
Stock issued under the EIP, as and to the extent
permitted under the Securities Act, to persons other
than Restricted Holders or (b) registering for resale
the shares of Common Stock held by Restricted Holders
in a Permitted Resale (as defined below).
11. RESTRICTION
ON SALE;
NO SHORTING;
ORGANIC CHANGE All securities issued pursuant to the Merger, the
earn-out and in the PPO will be "restricted"
securities, excluding the Option Shares, and shall be
subject to all applicable resale restrictions specified
by federal and state securities laws. At closing of the
Merger, all officers; directors; stockholders holding
ten percent (10%) or more of the Common Stock of UH
after giving effect to the Merger, the Split-Off and
the PPO of UH; and key employees agreed by UH and the
Companies (each a "Restricted Holder"; collectively the
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"Restricted Holders"), but excluding Tarren Wolfe in
respect of the Option Shares and any purchaser of any
of the Option Shares, shall enter into Lock-Up
Agreements with UH for a term of twelve (12) months,
subject to earlier termination with the approval of
disinterested members of the Board.
In addition, each Restricted Holder, excluding any
purchaser of any of the Option Shares, shall agree that
it will not, for a period of twelve (12) months
following the Closing Date, directly or indirectly,
effect or agree to effect any short sale (as defined in
Rule 200 under Regulation SHO of the Exchange Act),
whether or not against the box, establish any "put
equivalent position" (as defined in Rule 16a-1(h) under
the Exchange Act) with respect to the Common Stock,
borrow or pre-borrow any shares of Common Stock, or
grant any other right (including, without limitation,
any put or call option) with respect to the Common
Stock or with respect to any security that includes,
relates to or derives any significant part of its value
from the Common Stock or otherwise seek to hedge its
position in the Common Stock.
12. CONDITIONS
TO CLOSING;
NAME CHANGE The Merger shall include certain customary and other
closing conditions including the following:
(i) consummation of all required definitive
instruments and agreements, including, but not
limited to, the Merger Agreement, in forms
acceptable to UH and the Companies and
employment agreements as specified in Item 8;
(ii) each of the parties obtaining all necessary
board, shareholder and third party consents,
including but not limited to the EIP;
(iii) satisfactory completion by UH and the Companies
of all necessary technical and legal due
diligence;
(iv) the completion of the offer and sale of the
Minimum PPO;
(v) UH's shares of Common Stock shall be quoted on
the OTC, UH shall not be subject to any notice
of suspension or delisting, its common shares
shall be registered with the SEC, and it shall
have filed all reports required to be filed by
it with the SEC under applicable securities
laws, all as of the Closing Date;
(vi) no material indebtedness or pending or
threatened litigation against UH as of Closing
Date other than as disclosed on the appropriate
schedule to the Merger Agreement; and
(vii) receipt by UH of the Financial Statements.
12
ITEM DESCRIPTION
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13. PRE-CLOSING
COVENANTS UH and the Companies shall each cooperate with the
other and use their reasonable best efforts to execute
and deliver the Merger Agreement and all other
documents necessary or desirable to effect the
Transactions as soon as possible and to thereafter
satisfy each of the conditions to closing specified
thereunder.
14. CLOSING COSTS All fees and expenses relating to the Bridge Notes, the
Additional Bridge Notes, the Bridge Financing and the
Additional Bridge Financing(s), including but not
limited to legal and accounting fees, will be payable
at each closing of the Bridge Notes or the Additional
Bridge Notes, as the case may be, from the proceeds
thereof. All fees and expenses relating to the other
Transactions, including but not limited to Brokers'
Fees and legal and accounting fees of the Companies and
UH, will be payable at each closing of the PPO from the
proceeds thereof.
15. EXCLUSIVITY;
BREAK FEE From and after the date of the execution of this Letter
of Intent through and including October 31, 2014, with
a possible extension at the option of UH to November
30, 2014 (the "Exclusivity Period"), the Companies and
UH each hereby covenant and agree that it will not
enter into any public offering, merger, combination,
divestiture, financing, joint venture, sale and/or
acquisition agreement in whatever form, except for
agreements in the ordinary course of business or enter
into any other transaction that would preclude the
consummation of the Bridge Financing or the Additional
Bridge Financing(s), the PPO and the Merger Agreement
consistent with the terms set forth in this Letter of
Intent (an "Alternative Business Transaction"), nor
will the Companies enter into any discussions or
negotiations with respect thereto with any other person
other than UH.
If the Transactions are not completed as a result of
the Companies' decision, at any time, to breach this
Item 15 and pursue an Alternative Business Transaction,
the Companies shall immediately pay UH the amount of
$100,000 payable in cash as a break fee.
UH may terminate this Letter of Intent and its
obligations hereunder following receipt of the
Financial Statements if, upon review by UH, the
Financial Statements are unsatisfactory to UH in UH's
sole discretion, in which case UH shall have no further
liability or obligation to the Companies.
During the Exclusivity Period, the Companies and UH
will each incur legal and other costs and expenses in
connection with the negotiation of the Transaction and
certain due diligence activities relating thereto. UH
will provide the Companies with all information
necessary or desirable for the Companies to complete
their due diligence investigation of UH and will
cooperate with all reasonable requests for additional
information from the Companies.
13
ITEM DESCRIPTION
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16. GOVERNING LAW This Letter of Intent shall be governed and construed
in accordance with the laws of the State of New York,
without giving effect to principles of conflicts or
choice of laws thereof.
17. USE OF PROCEEDS UH shall receive the gross proceeds from the Bridge
Notes and the PPO, less brokerage commissions,
investment banking, legal and accounting fees directly
relating to the Transactions (including those of the
Companies), as set forth herein, subject to the terms
of the Placement Agent Agreement. The net proceeds of
the Bridge Notes and the Bridge Financing, and the
Additional Bridge Notes and the Additional Bridge
Financing(s), will be used as described above, and the
net proceeds of the PPO will be used as set forth on
Exhibit A hereto.
18. TERMINATION AND
EFFECTS OF
TERMINATION The obligations of the parties to each other under this
Letter of Intent shall terminate upon the first to
occur of (i) the expiration of the Exclusivity Period,
(ii) termination by UH or the Companies pursuant to
Item 15 of this Letter of Intent or (iii) the execution
and delivery of a Merger Agreement among the Companies,
UH and Subco, provided that the provisions and
obligations of the parties created by Items 14, 15, 17,
18, 19 and 20 hereof shall survive the termination of
this Letter of Intent. In the event of termination of
this Letter of Intent by either party for any reason
whatsoever, each party shall be responsible for its own
professional fees, and other expenses incurred by it.
19. CONFIDENTIALITY Each of the parties to this Letter of Intent agrees to
maintain the confidentiality of the terms of this
Letter of Intent and the Transactions, and not to use
any information it may learn about the other party for
any purpose other than to consummate the Transactions.
Further, no disclosure of any information concerning
this Letter of Intent, the Transactions or any
confidential information delivered by either party to
the other pursuant to this Letter of Intent or the
Transactions shall be disclosed to any other person
unless and until such other person shall have first
executed and delivered a written confidentiality
agreement (or is otherwise legally bound by reasonably
comparable confidentiality obligations existing under
contract or pursuant to the terms of his, her or its
work with any party to this Letter of Intent) by which
such person agrees to hold in confidence such
confidential information, which obligation shall
continue indefinitely, except as required by federal
and/or state securities laws.
The parties may publish a press release upon execution
of this Letter of Intent, the contents of which will be
subject to the prior approval of all parties, not to be
unreasonably withheld.
20. NOTICES Any notices desired, required or permitted to be given
hereunder shall be sent by facsimile or delivered
14
ITEM DESCRIPTION
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personally or mailed, certified or registered mail,
return receipt requested, or delivered by overnight
courier service, to the following addresses:
(i) if to UH, to the address first written above,
Attention: Frank Terzo, facsimile ; with a copy to
Crone Kline Rinde LLP, 488 Madison Ave., 12th Fl., New
York, NY 10022, Attention: Paul C. Levites, Esq.,
facsimile +1-212-400-6901; and a copy to Valor, to
Talstrasse 20, Second Floor, CH 8002, Zurich,
Switzerland, Attention: Shafiq Nazerali, facsimile
011-41-44-201-7994; with a copy to Crone Kline Rinde,
488 Madison Ave., 12th Fl., New York, NY 10022,
Attention: Adam S. Gottbetter, Esq., facsimile
+1-212-400-6901; and
(ii) if to the Companies, at the address set forth
above, Attention: CEO, facsimile +1-604-543-1768, with
a copy to Boughton Law Corporation, 595 Burrard Street,
Suite 1000, Vancouver, British Columbia, , Attention:
Rory Godinho, facsimile +1-604-683-5317.
21. DISCLAIMERS UH and Valor are not broker/dealers. This document is
for information purposes only and is not a solicitation
of any order to buy or sell securities or other
instruments. The information provided herein may be
displayed and printed for your use only. The
information is not intended to provide tax, legal or
investment advice. The securities described herein may
not be eligible for sale in all jurisdictions or to all
categories of investors. Each of UH, Valor, their
respective affiliates, and any officer, director or
stockholder, client or any member of their families may
from time to time purchase or sell or have a position
in any securities discussed herein. There may be
instances when fundamental, technical and quantitative
opinions contained herein, if expressed, may not be in
concert. UH, Valor, or one of their respective
affiliates, may from time to time perform investment
banking or other services for the company mentioned
herein. UH, Valor, and/or their respective directors,
officers, and employees or clients may serve as a
director of the company mentioned herein. UH and/or
Valor accept no liability for any loss or damage of any
kind whatsoever arising out of the use of the
information contained herein. You may not reproduce,
retransmit, distribute, sell, publish, broadcast or
circulate the information to anyone, without the
express written consent of UH and/or Valor, as the case
may be. This communication is not an offer to sell or
the solicitation of any offer to buy nor shall there be
any sale of the securities in any state in which such
offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws
of any such state.
15
22. BINDING NATURE. This Letter of Intent reflects the understanding of the
parties concerning the matters described herein, and is
intended to be and does constitute a legally binding,
enforceable agreement and commitment of the parties to
conclude a final and formal agreement. Any additional
obligations of the parties with respect to the
Transactions agreed to by the parties and intended to
be binding shall be memorialized by the execution and
delivery of the definitive Merger Agreement and related
documentation.
The binding nature of this Letter of Intent is subject
only to UHcontinuing to advance the Additional Bridge
Financing to the Companies on a monthly basis as
contemplated by Item 3, starting with the advances for
August 2014 and September 2014, which shall be
immediately due and payable upon the execution of this
Letter of Intent, and monthly thereafter on the last
day of each month and ending with the advance for the
month prior to the Closing Date. In the event that the
October Additional Bridge Financing is not advanced by
UH to the Companies on the last day of October 2014, UH
shall have a cure period of one week (the "Cure
Period") after the date on which the advance was to
have been paid to advance the $120,000 for the
OctoberAdditional Bridge Financing, provided that if
such advance is not paid to the Companies by midnight
on the last day of the Cure Period, this Letter of
Intent shall become non-binding immediately without any
further action by the parties.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
16
We look forward to working with you to complete the Transactions successfully
and expeditiously. If the foregoing correctly sets forth your understanding of
our recent discussions, please evidence your agreement to this Letter of Intent
by executing and returning to us a copy of this Letter of Intent in the space
set forth below.
URBAN HYDROPONICS, INC.
By: /s/ Frank Terzo
----------------------------------------------
Name: Frank Terzo
Title: President
AGREED TO AND ACCEPTED:
This 3rd day of October, 2014
URBAN CULTIVATOR INC.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: Director
BC NORTHERN LIGHTS, INC.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: President
W3 METAL INC.
By: /s/ Tareen Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: Director
0838373 B.C. LTD.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title:
17
0838373 B.C. LTD.
URBAN CULTIVATOR INC.
BC NORTHERN LIGHTS ENTERPRISES LTD.
W3 METALS INC.
Unit 311 - 13060 80th Avenue
Surrey, British Columbia, Canada V3W 3B2
October 31, 2014
Mr. Frank Terzo
Urban Hydroponics, Inc.
Suite 433, 4045 Sheridan Avenue
Miami Beach, Florida 33140
United States
Gentlemen:
We refer to that certain Letter of Intent dated October 3, 2014 (the "LOI")
whereby 0838373 B.C. Ltd. ("Numbered Company"), Urban Cultivator Inc. ("UC"), BC
Northern Lights Enterprises Ltd. ("BCNL") and W3 Metal Inc. ("W3", and together
with Numbered Company, UC and BCNL, the "Companies") intend to complete a
private placement offering, merger and related transactions with Urban
Hydroponics, Inc., formerly known as Placer Del Mar Ltd., and/or its affiliates
("UH"), a U.S. publicly traded company. Capitalized terms not defined in this
letter shall have the meanings given to them in the LOI.
The Companies and UH desire to revise certain terms in the LOI relating to the
Bridge Financing.
Accordingly, the LOI is hereby amended as follows:
1. With respect to the UH Bridge Financing discussed in Section 3 of the
LOI, UH may offer and sell the Bridge Notes plus the Additional Bridge
Notes up to an aggregate principal amount of $1,500,000 (the "Bridge
Notes Maximum").
2. The capitalization table set forth in Exhibit A hereto, which replaces
and supersedes the capitalization table set forth as Exhibit C to the
LOI, reflects that number of shares of UH common stock issuable upon
exercise of the Bridge Warrants to be issued to the holders of the
Bridge Notes and the Additional Bridge Notes up to the Bridge Notes
Maximum.
Other than the foregoing changes, all other terms and conditions of the LOI
remain in full force and effect.
SIGNATURE PAGE IMMEDIATELY FOLLOWS
18
If the provisions of this letter are acceptable to you, please so indicate
by signing and dating this letter in the space provided below on one or more
counterparts to confirm our mutual understandings as set forth in this letter
and return to the undersigned one signed copy of this letter.
Very truly yours,
URBAN CULTIVATOR INC.
By: s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: Director
BC NORTHERN LIGHTS, INC.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: President
W3 METAL INC.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title: Director
0838373 B.C. LTD.
By: /s/ Tarren Wolfe
----------------------------------------------
Name: Tarren Wolfe
Title:
AGREED TO AND ACCEPTED:
This 31st day of October, 2014
URBAN HYDROPONICS, INC.
By: /s/ Frank Terzo
----------------------------------------------
Name: Frank Terzo
Title: President
1
