ACQUIRED SALES CORP.
May 8, 2019
Mr. Erik S. Lundgren
CBD Lion LLC
25669 N. Hillview Ct.
Mundelein, IL 60060
Re:Letter of Intent
This is a letter of intent (this “LOI”) between CBD Lion LLC (“Lion”), the undersigned owners of Lion (the “Lion Owners”), Acquired Sales Corp. (“AQSP”), Gerard M. Jacobs (“GJacobs”) and William C. Jacobs (“WJacobs”), to engage in the following transaction (the “Transaction”), subject to the following conditions, and also subject to the following agreements and covenants, intending to be legally bound hereby:
AQSP will acquire 100% of the ownership interests in Lion in a reorganization, for the following consideration: Two Million Dollars ($2,000,000) in cash, plus the greater of: (i) Five Million (5,000,000) shares or (ii) a number of shares with a value at closing of the Transaction equal to 50% of the value of the aggregate consideration deemed paid to the Lion Owners for their ownership interests in Lion, in each case, such shares being in the form of unregistered common stock of AQSP (the “Stock Consideration”), provided that the Lion Owners shall enjoy so-called “piggyback registration rights” in regard to the Stock Consideration, and provided further that the Lion Owners shall enjoy so-called "demand registration rights" in regard to the Stock Consideration if no piggyback registration statement is filed with the SEC within 120 days following the closing of the Transaction, and provided further that at the closing of the Transaction, AQSP shall cause up to Four Hundred Sixty-Two Thousand Four Hundred Thirty Dollars ($462,430) of related party debt owed by Lion to be repaid in full (collectively, the “Transaction”).
Closing of the Transaction will be subject to the following conditions:
1. Lion shall, with the advice and assistance of WJacobs, AQSP’s President and Chief Financial Officer, immediately prepare Lion’s 2017, 2018 and 2019 financial statements, including statements of income, balance sheets and cash flows (the “Lion Financial Statements”), for audit and review.
2. As promptly as possible following the execution of this LOI, Lion at its expense shall engage AQSP’s PCAOB-qualified independent firm of certified public accountants, Fruci & Associates II, PLLC, Spokane, Washington, to audit the Lion Financial Statements for fiscal years 2017 and 2018, and to review the Lion Financial Statements for quarterly periods during 2019, in accordance with U.S. generally accepted accounting principles, and to provide all opinion letters and other documents as shall be necessary to allow Lion to be acquired by AQSP in the Transaction pursuant to all applicable U.S. Securities and Exchange Commission (“SEC”) and FASB rules and regulations, and to allow AQSP to timely file all necessary securities filings with the SEC (collectively, the “Audit”). If, the results of the Audit are not acceptable to AQSP, then the Transaction shall be abandoned.
3. Lion shall allow AQSP to conduct a so-called “due diligence” investigation of Lion’s business, permits, leases, contracts, books and records, financials, historical operations, business practices, computer systems, prospects, legal, taxes, and other matters. AQSP shall use its best efforts to complete such “due diligence” investigation within 30 days. If the results of such “due diligence” investigation are not acceptable to AQSP, then the Transaction shall be abandoned. Upon making such a determination, AQSP shall notice Lion promptly of AQSP’s abandonment of the Transaction as a result of the “due diligence” investigation.
4. Upon completion of the “due diligence” investigation and negotiation of a merger agreement (the “Merger Agreement”) containing representations, warranties, covenants, conditions, and indemnifications customary to transactions like the Transaction, AQSP and Lion shall execute and deliver the Merger Agreement. The Closing of the Transaction pursuant to the Merger Agreement shall be conditioned upon the execution and delivery by Lion and AQSP of mutually acceptable, legally binding, definitive closing documentation (the “Definitive Documents”) including:
(a) five-year employment agreement between AQSP and Erik S. Lundgren (the “Lundgren Employment Agreement”); and
(b) a shareholders agreement (the “Shareholders Agreement”) among the Lion Owners, GJacobs and WJacobs (collectively the “Parties to the Shareholders Agreement”), it being understood that the Shareholders Agreement shall include, among other things, agreements by each of the Parties to the Shareholders Agreement:
(1) to nominate, support and vote in favor of slates of nominees for the Board of Directors of AQSP who are mutually acceptable to the Parties to the Shareholders Agreement;
(2) to support and vote in favor of base salaries, a management bonus pool, and future stock options or warrants, for the key executives of AQSP including GJacobs, WJacobs and the Lion Key Executives, that are mutually acceptable to the Parties to the Shareholders Agreement;
(3) to support and vote in favor of future acquisitions and divestitures, capital raises, and other lawful corporate transactions from time to time, that are mutually acceptable to the Parties to the Shareholders Agreement; and
(4) not to directly or indirectly sell or transfer any of their AQSP stock, options or warrants as part of an agreement, contract, plan or arrangement of any nature that is intended to result in a change of control of AQSP, unless such agreement, contract, plan or arrangement is mutually acceptable to the Parties to the Shareholders Agreement and is approved by a majority of the Board of Directors of AQSP.
5. Closing of the Transaction under the Merger Agreement shall be conditioned upon AQSP offering five-year employment agreements (such employment agreements, together with the Lundgren Employment Agreement, the “Employment Agreements”) to each of the following key executives of Lion (such key executives, together with Erik S. Lundgren, the “Lion Key Executives”):
Katie M. Nauert
it being understood that the Employment Agreements (including the Lundgren Employment Agreement) shall include minimum base salaries for each of the Lion Key Executives of at least $100,000 per year, and shall also include participation for the Lion Key Executives in an annual AQSP management bonus pool, such bonus pool to be allocated as mutually agreed upon by the Compensation Committee of the Board of Directors of AQSP, GJacobs and Erik S. Lundgren.
6. Closing of the Transaction shall be conditioned upon the completion of a capital raise of at least Four Million Dollars ($4,000,000) by AQSP (the “Capital Raise”).
7. Closing of the Transaction shall be conditioned upon the receipt by Lion of a written opinion from Lion’s tax counsel that the Transaction qualifies as a reorganization that is “tax free” in regard to the Stock Consideration pursuant to the U.S. tax code and applicable Internal Revenue Service regulations promulgated thereunder (the “Tax Opinion”).
8. Closing of the Transaction shall be conditioned upon approval of the Transaction by the Board of Directors of AQSP, and, if necessary, by the shareholders of AQSP. The board of managers of Lion and the Lion Owners have all approved the Transaction, subject only to (a) approval of the Definitive Documents by the Lion Owners’ legal counsel, (b) the receipt by the Lion Owners of
the Tax Opinion from Lion’s tax counsel, and (c) elimination of Erik S. Lundgren’s personal guaranty of Lion’s lease payment obligations or any other corporate obligations.
9. Closing of the Transaction shall be conditioned upon the completion of all necessary securities filings and the obtaining of any necessary approvals from the SEC.
Pre-Closing Agreements and Covenants
10. During the period between the signing of this LOI and the execution and delivery of the Merger Agreement or the termination of this LOI, Lion and the Lion Owners shall not directly or indirectly enter into any discussion(s), negotiation(s), letter(s) of intent, merger(s), reorganization(s), stock sale(s), asset sale(s) (other than asset sales in the ordinary, normal, and customary course of Lion’s business), other transaction(s), loan agreement(s), financing agreement(s) or arrangement(s) of any type, other capital raise(s), or other contract(s) or arrangement(s) with any third party, or any other agreement(s), contract(s) or arrangement(s) outside the ordinary course of Lion’s businesses that would or might delay or make more costly or difficult the closing of the Transaction. The Merger Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the closing of the Transaction or termination of the Merger Agreement.
11. During the period between the signing of this LOI and the execution and delivery of the Merger Agreement or the termination of this LOI, the Lion Owners shall operate Lion only in accordance with the ordinary, normal and customary course thereof consistent with past practices. The Merger Agreement shall include similar covenants regarding the period between signing the Merger Agreement and the closing of the Transaction or termination of the Merger Agreement.
12. Lion, the Lion Owners, AQSP, GJacobs and WJacobs shall use commercially reasonable efforts to cause the closing of the Transaction to occur as soon as practicable, subject to the fulfillment of all of the conditions described above.
13. Upon execution and delivery of the Merger Agreement (which shall include, as exhibits, approved drafts of the Definitive Documents and a Tax Opinion to be delivered at closing), then and in such event AQSP shall make a $300,000 loan to Lion to be used by Lion exclusively for growth capital and not to be used to repay any related party debt of Lion nor to pay any increased salaries or bonuses to any of the Lion Key Executives. If the Transaction closes, then this loan shall be extinguished, because post-closing of the Transaction, Lion and AQSP will constitute the same entity. The Merger Agreement shall provide that if the Transaction does not close and the Merger Agreement is terminated, then the Loan shall be repaid by Lion to AQSP in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to AQSP on the first day of the first calendar month following the termination of the Merger Agreement.
Post-Closing Agreements and Covenants
14. As promptly as practicable following the closing of the Transaction, AQSP shall change its name to “CBD Lion Corp.” or to a similar name that is mutually acceptable to the Board of Directors of AQSP and to the Lion Owners, and shall change its ticker symbol to “ROAR” or other ticker symbol that is mutually acceptable to the Board of Directors of AQSP and to the Lion Owners, subject to all necessary approvals.
Termination of this LOI
15. This LOI shall terminate, without any payment by or penalty due from any party, upon execution of the Merger Agreement or if:
(a) The Audit shall not have been completed, or the results of the Audit shall have not been accepted by AQSP, by an outside date of August 31, 2019;
(b) AQSP has not closed the Capital Raise by an outside date of September 30, 2019;
(c) The Merger Agreement has not been signed by October 31, 2019 (the Merger Agreement, if executed, shall include an outside closing date of October 31, 2019, or such other date as mutually agreed by the parties);
(d) AQSP shall have delivered written notice to Lion that AQSP is abandoning the Transaction due to a determination that the results of the “due diligence” investigation of Lion are not acceptable to AQSP; or
(e) Any material provisions of this LOI shall be adjudged by a court or the SEC to be invalid or unenforceable, and thereafter the parties to this LOI are unable to mutually agree upon how to proceed forward with the Transaction as impacted by such court or SEC action.
16. Each of the parties to this LOI shall bear its, his or her own fees and expenses in connection with the proposed Transactions. Without limiting the generality of the foregoing, each of the parties to this LOI shall be solely responsible for the fees and expenses owed by it, him or her to any lawyers, accountants, financial advisors, investment bankers, brokers or finders employed by such party. Notwithstanding the foregoing two sentences, upon execution and delivery of the Merger Agreement (which shall include, as exhibits, approved drafts of the Definitive Documents and a Tax Opinion to be delivered at closing), then and in such event AQSP shall pay or reimburse Lion for all of the costs and expenses of the Audit regardless whether the Transaction closes or the Merger Agreement is terminated. AQSP acknowledges that Taft Stettinius & Hollister LLP (“Taft”) is being engaged to represent Lion in the Transaction, and that Taft has represented AQSP in the past in unrelated matters, but that Taft is not currently representing AQSP in the Transaction or any other matters.
17. AQSP shall be permitted to publicly disclose this LOI, and to share information regarding Lion, on a need-to-know basis, as may be necessary or desirable in connection with AQSP’s efforts to complete the Capital Raise or to satisfy the conditions to closing the Transaction, or otherwise as may be required to comply with applicable securities laws and regulations in the opinion of AQSP’s securities counsel.
18. The Lion Owners acknowledge that AQSP is a publicly traded company and that unauthorized disclosure of any material information regarding AQSP or the Transaction could subject the disclosing party to scrutiny and potential liability under applicable securities laws and regulations.
19. Signatures on this LOI may be signed by hand, or may be transmitted electronically in pdf formal, and all of such signatures shall be deemed to be valid original signatures.
We look forward to building a large and successful public company together, for the mutual benefit of AQSP’s shareholders and executives, and the Lion Owners and the Lion Key Executives. If the foregoing terms and conditions are acceptable, please sign below, thanks.
ACQUIRED SALES CORP.
/s/ Gerard M. Jacobs
/s/ Gerard M. Jacobs
Gerard M. Jacobs, CEO
Gerard M. Jacobs, in his individual capacity
/s/ William C. Jacobs
William C. Jacobs, in his individual capacity
Accepted and agreed upon, intending to be legally bound hereby:
CBD LION LLC
/s/ Erik S. Lundgren
Erik S. Lundgren
THE LION OWNERS:
/s/ Erik S. Lundgren
/s/ Gary S. Lundgren
Erik S. Lundgren
Gary S. Lundgren
/s/ Katie M. Nauert
/s/ Gayle Lundgren
Katie M. Nauert
/s/ Andrew Stepniak