EX. 10.1

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LETTER OF INTENT

 

March 27, 2019

 

From:     Magnolia Colombia Ltd. (the “Company”)

 

This binding letter of intent (the “Letter of Intent”) sets out the general
terms and conditions of the proposed business combination between the Company
and the Target (as defined below) by way of a merger or share exchange agreement
or other similar form of transaction (collectively, with any related
transactions, the “Transaction”) pursuant to which the Company will acquire all
of the issued and outstanding common shares in the capital of the Target (the
“Target Shares”). The Transaction will likely be a reverse take-over and be
considered a “Qualifying Transaction” pursuant to the policies of the TSX
Venture Exchange (the “TSXV”) or the Canadian Securities Exchange (“CSE”),
subject to the Target confirming this structure is acceptable.

The acceptance of this Letter of Intent will be followed by the good faith
negotiation of definitive documentation (the “Transaction Documents”), including
a definitive merger, amalgamation, arrangement or share exchange agreement (the
“Definitive Agreement”).

All dollar amounts herein refer to Canadian dollars unless otherwise noted.

1.The principal terms of the Transaction are as follows:

 

TARGET: PCT LTD. (the “Target”), a holding company located in Little River,
South Carolina who, through its wholly-owned operating subsidiary Paradigm
Convergence Technologies Corporation (“PCT”) is focused on the commercial launch
of its patented tracking system and environmentally safe, non-toxic
antimicrobial solutions.     TRANSACTION:

The Company is listed on the TSXV, and the Target will enter into the Definitive
Agreement to complete the Transaction.  Upon completion of the Transaction, the
combined entity (the “Resulting Issuer”) will continue to carry on the business
of the Target under its name and will list on the TSXV, the CSE or other
Canadian stock exchange. The domicile and operations of PCT shall remain in the
United States. The Target will have, as of the date of the execution of the
Definitive Agreement approximately 47,159,238 Target Shares issued and
outstanding. The Target also has US$2,500,000 of debt of which the Target will
use best efforts to on or before the Closing Date (as defined below), arrange to
convert a minimum of US$1.4 million of the debt at a price of no less than
US$0.10 per Target Shares (the “Debt Conversion”) and restructure such remaining
debt to be long-term debt (the “Debt Restructuring”). It is anticipated that the
47,159,238 Target Shares plus the Target Shares issued pursuant to the Debt
Conversion and all current convertible securities of the Target, will be
exchanged for common shares or convertible securities of the Company at a ratio
resulting in the shareholders of the Target owning 60% of the Resulting Issuer
and the shareholders of the Company owning 40% of the Resulting Issuer on a
pre-money on an undiluted basis (the “Exchange Ratio”).

 

The Transaction may proceed by way of plan of arrangement, triangular merger,
share exchange or other mechanism deemed to be the most effective, as determined
by mutual agreement of the parties. The Definitive Agreement will, among other
things, set out in sequence the steps agreed to in this Letter of Intent with
the result that, upon completion of the Transaction, all Target and Company
securities will have become securities of the Resulting Issuer.

   

THE COMPANY:

 

 

The Company has no material liabilities, approximately $1,800,000 in cash and
57,977,098 common shares issued and outstanding along with options and warrants
outstanding.

   

CONCURRENT FINANCING:

Prior to the completion of the Transaction, the Company and the Target will work
together to complete an equity financing private placement of common shares or
units with warrants of subscription receipts (the “Subscription Receipts”)
directly into the Company for gross proceeds of up to C$3,000,000 (the “Private
Placement”). All Subscription Receipts issued would be convertible, for no
additional consideration, into securities of the Resulting Issuer on closing of
the Transaction.

    LOAN: Subject to approval of the TSXV, the Company agrees to issue a secured
loan of up to CAD$250,000 to the Target following the execution of this Letter
of Intent, on mutually satisfactory terms to the Company and Target, which loan
will convert into shares of the Resulting Issuer on closing of the
Transaction.  Additionally, the Company agrees to arrange to have a third party
issue a secured loan to the Target of up to CAD$400,000 to pay for liabilities
and ongoing working capital requirements prior to closing the Transaction, with
such loan converting on the closing of the Transaction.       LOCK UP PERIOD:

The Company and Target agree that officers, directors and certain shareholders
of the Resulting Issuer may be compelled by the TSXV or the CSE to sign escrow
or lock-up agreements pursuant to which each of such individuals will agree not
to sell, transfer, pledge, or otherwise dispose of or transfer the economic
consequences of any securities of the Target held by such individuals and may
also be subject to such escrow periods as may be imposed by any other applicable
stock exchange in connection with the completion of the Transaction.

    DEFINITIVE AGREEMENT: In the Definitive Agreement, (i) Target shall, acting
reasonably, make such representations and warranties and provide such covenants,
conditions and indemnities to the Company, and (ii) the Company shall, acting
reasonably, make such representations and warranties and provide such covenants,
conditions and indemnities to Target and its stockholders (the “Target
Stockholders”), in each case as are customary for transactions similar to the
Transaction. For the avoidance of doubt, upon execution of the Definitive
Agreement, the Definitive Agreement will supersede this Letter of Intent.  All
documentation shall be in form and content satisfactory to each of the parties
and their respective counsel.  The Transaction Documents shall also contain such
other terms, conditions and agreements to which the parties hereto may
reasonably request and agree in order to complete the transactions contemplated
in this Letter of Intent.     CLOSING DATE: The closing of the Transaction is
subject to the execution of the Definitive Agreement incorporating the terms
hereof on or before April 27, 2019 and the completion of all conditions thereto
and closing to occur on or before July 15, 2019, or such other date as may be
agreed upon by the Company and the Target (the “Closing Date”).    

TIME OF ESSENCE:

 

Each of the Company and Target shall use commercially diligent efforts to pursue
all matters necessary to complete the Transaction, including, where necessary,
obtaining necessary board approvals, shareholder approvals and to solicit
proxies in favor of the Transaction.    

DUE DILIGENCE:

 

Prior to the execution and delivery by the parties hereto of the Definitive
Agreement, the Company and Target shall each be permitted, through their
respective representatives and advisors, to conduct customary due diligence
investigations of all aspects of the business, property and affairs of the other
party. Each party shall make available to the other party, in a timely manner,
all of their corporate records, including minute books, share ledgers, financial
statements, tax returns, material contracts and all records maintained in
connection with their business. The parties agree that due diligence will begin
immediately upon execution of this Letter of Intent and shall be completed by
the parties prior to execution of the Definitive Agreement.

    BOARD:

The board of directors of the Resulting Issuer following the Transaction,
subject to compliance with corporate laws and the receipt of all necessary
regulatory approvals, shall be comprised of six directors, with three directors
nominated by the Company and three directors nominated by the Target, with the
Chairman being nominated by the Target and having a casting vote in the event of
a deadlock.

    MANAGEMENT SERVICES AGREEMENT: Upon completion of the Transaction, the
Resulting Issuer shall enter into consulting agreements (collectively, the
“Consulting Agreements”) with members of the Forbes & Manhattan team to provide
services as the Chief Financial Officer, Corporate Secretary, Controller, Legal
Clerk and Investors Relations Manager, with monthly base fees under such
Consulting Agreements not to exceed C$20,000.00 per month.  Draft copies of the
Consulting Agreements will be provided to the Target during the Exclusivity
Period (defined below).  The Resulting Issuer will enter into contracts with
members of the management team of the Target, including specifically the
contract for Jody Read (the “Read Contract”) on terms satisfactory to the
Company, acting reasonably.  Draft copies of such management contracts will be
provided to the Company during the Exclusivity Period (defined below).  The
Company will use best efforts to reduce any obligations related to change of
control, severance or similar type payments.     CONDITIONS:

The closing of the Transaction is subject to the following conditions:

 

 * The parties entering into the Definitive Agreement and receipt by each party
   of all required consents, approvals and other authorizations of any
   regulatory authorities, shareholders or third parties;

 * Satisfactory due diligence review by the Company, in its sole discretion, of
   all of the relevant corporate documents, contracts, liabilities and material
   agreements relating to the Target;

 * The Resulting Issuer entering into the Read Contract on terms satisfactory to
   the Company; and

 * Completion of the Debt Conversion and Debt Restructuring on terms
   satisfactory to the Company.

2.(a)From the date hereof until the Termination Date (defined below) (the
“Exclusivity Period”) the Parties hereby agrees to negotiate exclusively with a
view to executing the Transaction Documents as soon as possible. Each Party
agrees that, except as required by law, during the Exclusivity Period, neither
it, its affiliates nor any of its representatives, officers, directors,
employees, advisors or agents will, directly or indirectly, make, solicit or
initiate enquiries from, or the submission of proposals or offers from, any
other party or participate in any discussions or negotiations regarding, or
furnish to any other party any further information with respect to any
transaction involving a recapitalization, restructuring, amalgamation,
arrangement, merger, consolidation, business combination or joint venture that
would in any such case result in a direct or indirect disposition of the shares
or assets of either Party, or a material portion thereof or any similar
transaction involving the Company, the Target or their respective subsidiaries,
or otherwise co-operate in any way with, or assist or participate in or
facilitate, any effort or attempt by any person to do or seek to do any of the
foregoing. In the event of a breach of this provision by either Party (the
“Defaulting Party”), the Defaulting Party shall pay the reasonable legal,
accounting and other professional fees and expenses incurred by the other Party
in respect of negotiating this Letter of Intent and other Transaction Documents
and in preparing for the closing of the Transaction, with fees and costs capped
at $100,000.

(b)In the event that Target or any of its stockholders obtains a bona fide offer
from a third party relating to a transaction which would materially interfere
with the Transaction and which Target wishes to pursue at the instruction of its
board of directors or a committee thereof, including without in any way limiting
the generality of the foregoing, any such arrangement or agreement resulting
from an unsolicited offer or proposal (such offer, a “Target Offer”), then
Target shall provide forthwith a copy of the Target Offer to the Company (and in
any event within one business day following receipt thereof).

(c)During the Exclusivity Period, the Company and Target also agree to use
commercially reasonable efforts to provide whatever information is required to
complete the Transaction, including, without limitation, the approval of the
TSXV and/or CSE and completion of the information circular, listing statement or
any other filing requirements in connection with the Transaction, including
specifically two years of audited financial statements of the Target.

3.From the date of the acceptance of this Letter of Intent until the earlier of
the Closing Date or the Termination Date, the Company and Target will operate
their respective businesses in a prudent and business-like manner in the
ordinary course and in a manner consistent with past practice.

4.Each party shall be responsible for its own costs and charges incurred with
respect to the transactions contemplated herein including, without limitation,
all costs and charges incurred prior to the date of this Letter of Intent and
all legal and accounting fees and disbursements relating to preparing the
Transaction Documents or otherwise relating to the transactions contemplated
herein.

5.Each party shall permit the other party and its counsel to participate fully
in the preparation of all documentation to be used in connection with the
approval of the Transaction.

6.(a)No disclosure or announcement, public or otherwise, in respect of this
Letter of Intent or the transactions contemplated herein will be made by any
party without the prior approval of the other party as to timing, content and
method, hereto, provided that the obligations herein will not prevent any party
from making, after consultation with the other party, such disclosure as its
counsel advises is required by applicable law or the rules and policies of the
TSXV or US Securities Laws. The parties agree that the Company will issue a
press release following the execution of this Letter of Intent, which shall be
approved by the Target prior to release, acting reasonably.      (b)All
information discovered or acquired by each of the parties hereto (the
“Confidential Information”), in any form whether written, electronic or verbal,
as to financial condition, business, properties, title, assets and affairs
(including any material contracts) as may reasonably be requested by the other
party, will be kept confidential by each party hereto and not be utilized for
any purpose except in connection with the Transaction, notwithstanding either
the termination of this Letter of Intent or its completion, other than
information that:

(i)was generally available to the public prior to the date of this Letter of
Intent or has become, other than due to the default of the other party,
generally available to the public;

(ii)was available to a party on a non-confidential basis before the date of this
Letter of Intent;

(iii)has become available to a party on a non-confidential basis from a person
who is not otherwise bound by confidentiality obligations to the provider of
such information or otherwise prohibited from transmitting the information to
the party; or

(iv)a party is legally required or compelled to disclose under applicable law or
in any governmental, administrative, or judicial process.

 (c)No Confidential Information may be released to third parties other than
legal counsel and other advisors to the parties without the prior consent of the
provider thereof, except to the extent that such Confidential Information is
compelled to be released by legal process or must be released to regulatory
bodies, including the TSXV or included in public documents. Notwithstanding the
generality of the foregoing, the parties hereto acknowledge and agree that the
Definitive Agreement will be publicly filed by the Company under its profile on
the SEDAR website at www.sedar.com and by the Target on www.sec.gov, as soon as
practicable following execution.      (d)All such Confidential Information in
written form and documents will be returned to the party originally delivering
them in the event that the Transaction is not consummated.

7.Subject to written agreement to extend this Letter of Intent, this Letter of
Intent shall terminate with the parties having no obligations to each other,
other than in respect of the expense payment and confidentiality provisions
contained in paragraphs 4 and 6, respectively, on the day (the “Termination
Date”) on which the earliest of the following events occurs:

a.written agreement of the parties to terminate this Letter of Intent;

b.the parties not entering into the Definitive Agreement on or before April 27,
2019; and

c.any applicable regulatory authority having notified in writing any of the
parties that it will not permit the Transaction to proceed.

8.This Letter of Intent will constitute a legally binding agreement pending
negotiation of the Transaction Documents and will inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns. No assignment of this Letter of Intent will be permitted without the
consent of the other party.

9.The binding obligation of this Letter of Intent, the Transaction Documents and
other agreements contemplated herein and therein, if entered into, will be
construed in all respects under and be subject to the laws of the Province of
Ontario and the federal laws of Canada applicable therein which are applicable
to agreements entered into and performed within the Province of Ontario.

10.All notices, requests, demands or other communications by the terms hereof
required or permitted to be given by one party to another shall be given in
writing by personal delivery, email transmission or by registered mail, postage
prepaid, addressed to such other party or delivered to such other party as
follows:       in the case of notice to be given to the Company, be addressed
to:       

Magnolia Colombia Ltd.

65 Queen Street West, 8th Floor

Toronto, Ontario M5H 2M5

      

Attention: Neil Said

Email: nsaid@fmresources.ca

      and, in the case of notice to be given to Target, be addressed to:       

PCT LTD.

4235 Commerce Street

Little River, SC 29566

      

Attention: Jody Read

Email: jread@para-con.com

      

With a copy to:

DeMint Law, PLLC

3753 Howard Hughes Parkway

Second Floor, Suite 314

Las Vegas, Nevada 89169

      

Attention: Anthony N. DeMint, Esq.

Email: anthony@demintlaw.com

      or at such other address as may be given by any of them to the others in
writing from time to time and such notices, requests, demands or other
communications shall be deemed to have been received, if sent by email, on the
first business day after sending or, if sent by registered mail, on the fifth
business day after mailing or, if delivered, upon the date of delivery.

11.This Letter of Intent constitutes the entire agreement, and supersedes all
other prior agreements and undertakings, both written and oral, between the
parties with respect to the subject matter hereof.

12.Each party will, at its own cost, execute and deliver any further agreements
and documents and provide any further assurances as may be reasonably required
by the other party to give effect to this Letter of Intent and, without limiting
the generality of the foregoing, will do or cause to be done all acts and
things, execute and deliver or cause to be executed and delivered all agreements
and documents and provide any assurances, undertakings and information as may be
required from time to time by all governmental authorities, the TSXV and/or CSE
or as may be required from time to time under applicable securities legislation.

13.Each party represents and warrants to the other that all negotiations
relating to this Letter of Intent and the transactions contemplated by this
Letter of Intent have been carried on between them directly, without the
intervention of any other person on behalf of any party in such manner as to
give rise to any valid claim against either of Target or the Company for a
brokerage commission, finder’s fee or other similar payment.

14.No supplement, modification, amendment, waiver, discharge or termination of
this Letter of Intent is binding unless it is executed in writing by the party
to be bound. No waiver of, failure to exercise or delay in exercising, any
provision of this Letter of Intent constitutes a waiver of any other provision
(whether or not similar) nor does any waiver constitute a continuing waiver
unless otherwise expressly provided.

15.Each provision of this Letter of Intent is distinct and severable. If any
provision of this Letter of Intent, in whole or in part, is or becomes illegal,
invalid or unenforceable in any jurisdiction, the illegality, invalidity or
unenforceability of that provision will not affect the legality, validity or
enforceability of the remaining provisions of this Letter of Intent, or the
legality, validity or enforceability of that provision in any other
jurisdiction.

16.This Letter of Intent may be executed in counterpart and evidenced by a
facsimile or other electronic copy thereof and all such counterpart execution or
facsimile copies shall constitute one document.

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In witness whereof the Company and Target have executed this Letter of Intent
effective as of the date first above written.

 

MAGNOLIA COLOMBIA LTD.                 Per: /s/ James S. Lanthier       Name:
James S. Lanthier       Title: CEO                 PCT LTD                      
  Per: /s/ F. Jody Read         Name: F. Jody Read         Title: CEO